Contrasting Views

Dr. Kurt Guidry, LSU AgCenter agricultural economist, provides a timely soybean market update.

New crop soybean futures prices have found themselves trading in a fairly narrow range in the midto upper $9.00 per-bushel range for much of 2015. The inability of the market to make a sustained move one way or the other can really be viewed as both a positive and a negative. The inability to move higher can be viewed as the long-term bearish view of this market faced with record supplies and stocks. The ability of the market to maintain at these levels, despite the supply and demand imbalance, can be viewed as a positive sign of the strong underlying demand base for this commodity.

The contrasting views of this market continued in a series of reports released by the USDA over the last several weeks. The planting intentions report showed a record 84.6 million acres expect to be planted in the U.S. in 2015. While larger acreage and the potential for larger supplies does nothing to suggest this market will start to ease some of the supply side pressures, it did have a slightly positive twist as many of the pre-report estimates placed acres as high as 88 million for 2015. Next, the quarterly grain stocks report showed soybean stocks on March 1, 2015, at over 34 percent higher than the previous year. Again, while this stock number did not change the current view of burdensome supplies facing this market, it had a positive twist in that total implied soybean use through the first half of the 2014/15 marketing year was nearly 12 percent higher than the previous year.

In the latest USDA supply/demand report, South American production was increased by one million metric tons and world stocks were increased to a record 89.55 million metric tons, over 35 percent higher than the previous year. These negative market factors were countered with the USDA increasing total U.S. soybean use and reducing 2014/15 ending stocks by 20 million bushels.

So, while the market has received its share of both positive and negative market signals, the bottom line is that world supplies are higher than they have ever been. And with planting intentions suggesting more acres and potentially more production in the U.S. for 2015, it is difficult to argue that just a strong demand base will be enough to keep prices supported. This is without the potential of actual acres coming in higher than the planting intentions report, which is a possibility given the corn planting delays in parts of the Eastern Corn Belt. It seems unlikely that without a production surprise in the U.S. or South America that the market could expect to see the type of demand growth needed to bring the supply/demand dynamics back to one that would support higher prices.

What the strong demand base can do, however, is provide enough short-term support to keep prices in their current trading range until the market is more confident in the potential size of the 2015 crop and help prevent prices from a complete fallout if production numbers do come in as high as currently projected.

In the short term, I would expect new crop prices to trade in a range from the lower to upper $9.00 per bushel. Anything at the higher end or above that price range should be viewed as a pricing opportunity. If conditions play out as expected, I would expect prices to come under pressure later this summer and generate a price range for the entire 2015/16 marketing year somewhere in the low to high $8.00 per-bushel range.

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