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Corn+Soybean Digest

Don't Count On Preharvest Rally

It may seem silly to be talking about fall '98 prices in May. But the long-term price outlook should be considered when determining how aggressive to be with your forward contracting program.

Over the last three or four years, it was prudent to hold a portion of old-crop soybeans right up to the start of the new-crop harvest. Domestic usage and export demand for U.S. beans have remained strong enough, long enough, to reward stingy bean sellers deep in the marketing year.

Perhaps the most important factor, however, has been dwindling supplies of South American soybeans in the late-July-through-August period. The tightening global supply picture has resulted in at least a significant basis rally - enough to pay for months of storage.

This year will likely be a different story. Yes, tightening domestic supplies will limit heavy summer price pressure on beans, but the export market probably won't contribute to what has become a new seasonal rally.

The reason is fairly simple - Brazil will have beans left when combines start rolling in the Midwest this fall.

Rainy weather through March and early April was the primary reason for Brazil's sluggish start to the export season. When rain is falling (even just a mist), the hatches of the cargo ships are closed and loading comes to a halt. The rainy description is different than many would have given Brazil at that time. But El Nino-inspired coastal rains kept Brazil's largest bean export port (the Port of Paranagua) soggy while first-half-harvest beans found their way to port.

Despite the snail-paced loadings that were at only about half the pace seen in 1997 for beans and meal, inventories at the port were not huge. Slow movement from the field to the port also slowed bean and soybean meal loadings.

Overall, Brazilian bean producers were simply not willing to sell. The hope for higher prices was the reason. In early April, harvest was about one-third complete in Rio Grande and Parana and cash bean prices had fallen to $5.50-5.90/bu. But the trend was down and was not expected to change until harvest was complete.

Further inland in Mato Grosso, bean harvest was nearly three-quarters complete in early April and prices had dropped to $4.20/bu.

Producers were in the storage mode, despite the fact that few have storage to hold much of their crop - much less maintain its quality in storage. Their attitude was that prices would recover.

Merchandisers in Rio Grande and Parana saw the price action in Mato Grosso as a sign of things to come. As a result, they refused to risk buying high $5 beans when low $4 beans were a possibility as harvest progressed.

Brazil normally sells soybean meal and oil in the export market year-round. That's why the country has become an excellent market for U.S. beans. That will likely change for the 1997-98 marketing year. The slow loadings pace and producers' reluctance to sell at low prices will likely keep enough of Brazil's beans at home long enough to keep its crushing facilities running on domestic supplies after 1998-crop U.S. beans are available.

Bottom line: Brazil won't likely import any significant tonnage of U.S. soybeans this year. That alone means slower-than-expected export demand in the last quarter of the marketing year. Also, with Brazil able to supply meal, oil and soybeans as the U.S. new-crop comes on line, export demand for our new-crop beans won't be as fast and furious as in the last few years.

So don't count on a late-season/preharvest bean rally to give another chance to finish up old-crop bean sales or to get aggressive with new-crop forward contracting. That means you must take advantage of mid-summer weather rallies to make those sales. Unfortunately, you'll have to make them when it's most difficult to sell (see our April Bottom Line, page 38, for background).

However, there is a silver lining to this dark cloud over the bean market. After several years of encouragement from the market to grow beans, Brazilian producers are getting more typical harvest prices. That will slow Brazilian acreage expansion.

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