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Soy outlook — watch South America

Potentially “astronomical” soybean plantings in South America could put a damper on U.S. soybean exports that were “outstanding” in 2009, says marketing advisor Robert Huston.

“Anticipated numbers in Brazil and Argentina are quite astronomical in comparison to previous years, and a really large soybean crop there will be putting downside pressure on price,” he said at the Mississippi Farm Bureau Federation Winter Commodity Conference.

Huston, general manager for AgriVisor at Bloomington, Ill., says 2009’s average yield of 44.9 bushels on 77.5 million acres was “just outstanding” and exports of U.S. soybeans were “pretty impressive. We had very strong exports, 1.375 billion bushels.”

Many analysts are expecting this to slow down significantly this year and taper off because of the potentially large crop in Brazil and Argentina and the expectation by many that China will focus its buying more on South America because of the large crop there.

“But there are questions as to whether this will happen, whether the infrastructure and ports in Brazil can handle it. And the dollar is also going to be a factor — if we have a lower dollar, U.S. exports could hold fairly stable; if a higher dollar, they could taper off faster. We’ve had a good bit of down movement in the dollar, which has supported our exports and ultimately supported grain prices.”

The economy is also “a significant influence” as well, Huston says.

“I like the May-June timeframe as the best time to be selling beans. We have a five-year trend of beans going higher into the summer, then tapering off quite a bit as you go into October.

“Looking at the nearby range for soybeans, I’m putting it at $8.80 to $10.70, with a longer term of $7.75 to $12.90. If there should be some dry weather or other surprises with the South American crop, we could see some fireworks in beans. But if the crop there goes well, we could see the lower end of that range.”

While exports of U.S. corn and soybeans were strong in 2009, Huston says, there was “a stark contrast” between those commodities and wheat. “Wheat ending stocks are higher than we’ve had in recent years, and prices are a good bit lower.”

Wheat hasn’t had much long activity by index funds, he says, chiefly because “there are no fundamental reasons to be bullish on wheat.”

For selling old crop rice into rallies, he sees an upside target of $15.80 per hundreweight in the nearby, and beyond that a range of $13.05 to $17.94.

Factors affecting crop prices include weather, supply and demand, and other markets, such as crude oil, the dollar, gold, index funds, geopolitical actions, etc.

But a lower value dollar will help make U.S. exports more attractive for overseas buyers by increasing their purchasing power, he says. “A lower dollar will enable us to have strong exports and will be good for the markets.

“A lot of things affect the dollar — policy, inflation, gold prices — but crude oil has a major impact on the dollar and, thus, the grain markets.”

There is “an interesting correlation” between corn and crude oil and corn and gold, Huston says.

“In the 1970s, the ratio of crude oil to corn was fairly stable at about 2-to-1. Then in the 1980s, there was quite a bit of volatility, with the ratio averaging about 10-to-1. If corn was $2, crude oil was about $20. For the last couple of years, the ratio has been about 20-to-1; when we had $4 corn, we had $80 crude.

“Using that ratio, with crude at $60, you’d have $3 corn, and with crude at its resistance level of $90, you’d have $3.50 corn.”

A lot of people look at corn as an asset in which to invest to help diversify risk and protect the value of their stock portfolios, Huston says.

Going back to 1975, the gold to corn ratio has been about 300-to-1, he notes. “That’s about where we are today, with gold at $1,130 and corn at $3.50.”

In the recent economic crisis, he says, the U.S. “has been in a recession, there has been deflation, and now we’re starting to get more concerned about inflation.

“Inflation based on CPI is now just under 3 percent. Moore’s Inflation Predictor, which has been eerily correct, is suggesting that by November, in an extreme case, inflation could be 5 percent, but that the most likely scenario is 3.5 percent, with the low side being 1 percent.

“How does this affect markets? In times of inflation, a lot of investors will seek hard assets such as gold to hedge against inflation risk.”


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