By Kurt Guidry
LSU AgCenter Agricultural Economist
Editor’s Note: On July 1, Dr. Kurt Guidry, LSU AgCenter agricultural economist, provided the following updates for the soybean and grain sorghum markets.
Soybean Market Update
The November 2015 soybean futures contract closed up $0.58 per bushel on June 30, 2015 at $10.37 per bushel, the highest it has traded since November 2014. With basis levels in the state running from about $0.04 to as high as $0.50 over the November contract, cash prices are approaching the upper $10.00 to $11.00 per bushel range.
A lot of positive news came from the reports released on June 30, 2015. While soybean acreage was up from the Planting Intentions report and is nearly 1.5 million acres higher than 2014, the increase was not nearly as large as most in the market had anticipated. And, with planting delays in many areas of the country, there are many believe that the number will only go down in future reports. In addition, the Quarterly Grain Stocks report showed stocks that were significantly lower than most had anticipated and, assuming average use over the final quarter of the 2014/15 marketing year, could result in an ending stocks number as much as 90 million bushels below USDA’s current estimate of 330 million bushels.
In addition, with export sales and commitments currently at levels above USDA’s estimate of total 2014/15 marketing year exports, there seems to be significant evidence to suggest that ending stocks for the 2014/15 marketing year will have to be reduced in future reports. Adding to that positive news is the fact that the 2015 crop is going to be later than normal and there are concerns about its current condition. Both of these suggest that yields will be down across the US helping to moderate the impact of the increased acres.
Currently, the percent of the US soybean crop in good to excellent condition is down 9 percentage points from last year. Even more striking is the fact that in major states like Illinois, Missouri and Indiana, the percentage of the crop in good to excellent condition is down double digits from the previous year. All of these factors point to an improving supply and demand situation for soybeans.
And with demand projected to remain strong for the 2015/16 marketing, there are certainly ample factors pointing to an improved outlook for this market. The only downside for this market is the explosion in world supplies and stocks experienced in the last year and a strengthening US dollar potentially limiting export competitiveness. When all factors are considered, it certainly seems that the price outlook has improved from the mid $8.00 to mid $9.00 range to the low $9.00 to mid $10.00 range with the potential for moving higher on weather issues.
With prices now above $10.00 and positive basis levels being offered, producers should consider taking advantage of this pricing opportunity. Certainly if prices move into the mid $10.00 per bushel level and above, producers would want to give serious consideration to locking in some of those prices on a portion of their crop.
While the outlook has improved, large world supplies, the likelihood of continued expansion in South America, and the uncertainty in the impact of the US dollar on exports all could move this market back into the low end of the price projection range.
Grain Sorghum Update
While grain sorghum prices were already at a premium to corn prices, this latest round of news has simply added to the positive tone of prices.
The biggest single factor in the grain sorghum market currently is the pace of export sales. Domestic policy in China that limit their grain buyers and users from importing corn does not apply to grain sorghum. As such, buyers have increased their interest in importing grain sorghum as a cheaper alternative to the highly subsidized and high priced corn produced domestically. As long as this trend in China purchases continues, grain sorghum prices will undoubtedly be supported.
Even with the Crop Acreage report showing nearly 1 million more acres than the Planting Intentions report and over 1.7 million more than 2014, the significant export demand from China and the improved supply and demand situation for corn should keep prices in the $4.00 to $5.00 range. The only thing that could derail the momentum in the grain sorghum market would be if China begins to back off from its purchases. While there are no indications that this will happen anytime soon, you just can never really be certain when it comes to China’s behavior.
With new crop basis levels ranging from $0.60 to over $1.00 per bushel above the December contract, cash offers are now at the $5.00 level and above. While the outlook looks positive, producers may want to consider protecting some of these prices.
With a stronger US dollar, higher levels of feed grade wheat, and just the unpredictability of China, there are enough reasons to perhaps play it conservatively with at least a portion of the expected crop.