Soybean prices charged higher to start the new year, with Chicago futures reaching a six-month high, and well past $10.50 a bushel, after USDA surprised traders in its Jan. 12 report by lowering its estimate for the 2016 harvest to 4.31 billion bushels. Traders, on average, expected an increase in the harvest.

Chicago soybean futures gained more upward traction in the days after the USDA data release from reports of excessive rain in Argentina, which threatened the crop there.

“Old-crop soybean prices are getting a lift from the smaller 2016 crop. Now the question is whether demand will be stronger than forecast to bring ending stocks down more,” says Bryce Knorr, Farm Futures senior grain market analyst.

Soybeans were not the only surprise from USDA. The Jan. 12 report also slashed winter wheat acres to 32.4 million, the lowest in more than 100 years and down 7% from the 2016 crop.

Smaller acreage had been expected as poor prices and profits have had farmers in the Plains and Midwest switching to other crops. However, traders were expecting a number north of 34 million.

“The shockingly low winter wheat seedings show how quickly and dramatically farmers are adjusting to the new price reality,” says Knorr. “Many of those [wheat] acres will move into soybeans. That prospect could be a drag on the soy complex sooner than later, unless farmers on the Northern Plains decide to push spring wheat seedings.”

As expected, the lower acreage sent winter wheat futures higher in the days after the report, with Kansas City’s hard red winter futures moving above $4.50 a bushel for the first time since late August.

USDA’s corn crop estimate of 15.15 million bushels was a little smaller than trade forecasts, but close enough that there was minimal price reaction. However, corn prices did trend higher after the report, pulled up by soybeans and wheat. 

USDA raised its forecast average price received by corn producers for the current 2016-17 crop year (September-August) by 5 cents on both the low and high ends of its range to $3.10 to $3.70 per bushel, for a midpoint of $3.40, which also is up 5 cents from its previous forecast.

“The corn price increase reflects higher sales prices year-to-date and expectations of higher prices for the other major field crops such as soybeans and wheat,” USDA said in the report.

South America has been getting a lot of attention, with Brazil forecast to harvest a record soybean crop and Argentina's farmers battling drought and excessive rain all in the same growing season. USDA’s January report raised Brazil’s soybean crop to 104 million metric tons from the previous forecast of 102 million and left Argentina’s unchanged at 57 million.

However, since that report, Argentina sources say much of that country’s second-crop soybeans, which are planted after the wheat harvest, have been hurt by the rain and flooding. Argentina’s soybean harvest begins in March, but the second-crop soybeans will not come out until May.

USDA also released its grain stocks report on Jan. 12, which put the corn supply up from a year ago at 12.4 billion bushels. However, that was lower than trade forecasts.

“Usage for ethanol could be greater than the government expects, thanks to record production the last few weeks,” says Knorr. “Still, stocks are at record levels, giving the market little reason to rally until the trade turns its attention to 2017 planted acreage.”

Soybeans stored in all locations as of Dec. 1 totaled 2.9 billion bushels, up 7% from a year ago, and wheat stocks of 2.07 billion bushels were up 19% from a year ago.

Farmers sell as prices rise
Farmers responded to the nearly 6% rise in soybean prices since the Jan. 12 crop report by selling large amounts of their old-crop supplies, according to grain dealers.

There were some new-crop sales, but most were old crop. The slow new-crop selling was attributed to farmers having “seen these prices before” and being willing to wait for higher prices.

There were sales of old- and new-crop corn as those futures moved higher, but the volumes lagged those in soybeans. Old-crop cash prices in central Illinois near $3.50 in mid-January were not enough to entice farmer selling.

Beginning in late January, some grain elevators in Iowa began offering free storage on corn until next August. The purpose is to draw in corn from on-farm grain bins. Once the grain is at the grain elevators, farmers can then set the selling any time before August. The free storage is primarily offered on corn, as farmers tend to sell soybeans off the combine.

Dry conditions for winter wheat
The National Weather Service’s 90-day forecast that runs through March favors dry conditions for much of the hard red winter wheat areas in the Central and Southern Plains, but favors above-normal precipitation for soft red winter wheat regions in the Midwest.

Conditions for hard red winter wheat dropped considerably in December due to cold, dry weather. Kansas wheat in early January was rated 2% excellent, 42% good, 37% fair, 14% poor and 5% very poor, which was down from the previous month’s readings of 7% excellent, 45% good, 35% fair, 10% poor and 3% very poor.

Oklahoma’s wheat was equally bad, with ratings dropping to 25% good, 50% fair, 19% poor and 6% very poor from the previous monthly readings of 7% excellent, 46% good, 35% fair, 9% poor and 3% very poor.

Burgdorfer is senior editor for Farm Futures.