FORT COLLINS, Colo. (Reuters) - Chicago soybean futures have rallied more than 30% since the start of August and are set to finish the year on the strongest note since 2013, though U.S. farmers in the spring could initiate a price reset similar to 2014 with a boost in plantings.
Most-active futures are trading off their $12 per bushel top from late November, though prices are still holding at 4-1/2-year highs with U.S. soybean stockpiles expected to tumble substantially over the next nine months.
Tight supplies of soybeans throughout mid-2021 will likely keep old-crop contracts elevated and domestic cash prices firm, but the new-crop prices could come under significant pressure as U.S. farmers are seen increasing acres in the upcoming cycle.
The most-active January contract settled at $11.69-1/2 per bushel on Monday, though November futures, representing next year’s crop, ended at $10.59. January’s $1.11 premium is unusually large for the time of year, though it is not as strong as the same date in 2012 and 2013, despite being very similar a month ago.
The popular July-November spread is at a $1.17 per bushel inverse, closer to what was observed in 2012 and 2013. The 2021 contracts since October have followed a very similar trend as the 2014 ones did in late 2013, and the July 2014 premium had pushed above $2 per bushel by spring of 2014.(tmsnrt.rs/3mo1UbL)
Flat price is much lower today than on the same date in 2012 and 2013, when most-active futures were trading above $14 and $13 per bushel, respectively. But beyond the spread similarities, there are multiple fundamental reasons why 2014 could be a good blueprint for potential soybean market trends in 2021.
2014 REPLAY?
The U.S. Department of Agriculture predicts domestic 2020-21 soybean ending stocks at 175 million bushels, a seven-year low. The implied stocks-to-use ratio of 3.9% would also be the lightest since 2013-14.
Although that supply level would not be realized until the marketing year ends on Aug. 31, market participants will have a very good idea before then of U.S. inventory possibilities into 2022 based on how the crop looks.
Top soybean exporter Brazil is still expected to harvest a record soybean crop early next year despite ongoing weather concerns, though Argentina’s is more likely to be average. This is somewhat consistent with early 2014, when Brazil’s production hit a new high, and Argentina’s came close to its record.
U.S. farmers will not start planting soybeans in earnest until May, but they will tell USDA of their intentions in early March. The agency has penciled in 89 million soy acres for 2021, up 7% on the year but short of 2017’s high of 90.2 million.
In March 2014, U.S. farmers reported plans to plant a record 81.5 million acres of the oilseed, a bit more than the market predicted and up 6% on the year. November 2014 futures ended March just below $12 per bushel, up about 1.5% on the month.
New-crop futures continued to rise through April 2014, trading in the $12 range through late June. But the June 2014 acreage shocker was the first catalyst in driving prices sharply lower.
The June 30, 2014, acreage report showed a 4% increase in soybean acres from March intentions, completely blindsiding analysts who had under-guessed the number by more than 3%. That remains the trade’s worst lowball of June soy acres since at least 2005.
However, there might be less of a tendency to underestimate acres this spring because the area currently being discussed has been observed in the past, whereas the 2014 figures were uncharted territory at the time.
July 2014 brought even worse news for the soy bulls as U.S. crop conditions and weather forecasts were fantastic and a bin-busting harvest was nearly certain. By the end of August, new-crop futures had fallen 13% since the June acreage report.
November 2014 futures dipped below $10 per bushel in early September before bottoming out at $9.04 on Oct. 1, 2014, though they went off the board above $10. (tmsnrt.rs/37keYuF)
SILVER LINING
The 2014 example may be somewhat extreme as the perfect storm of bearish factors developed by mid-year. The price pressure that year was worsened by the fact that it immediately followed the epically bullish market that peaked in 2012 with the U.S. drought.
But it is very likely that a strong 2021 U.S. soybean acreage, if combined with favorable growing conditions, could also have a similar downward effect on soybean prices by mid-year. That might disappoint farmers and bulls alike, but it sets up for a strong 2021-22 demand outlook.
When prices crashed in mid-2014, it immediately sparked much stronger and earlier than normal export sales for the upcoming 2014-15 marketing year. U.S. soybean exports soared above records in late 2014, and overall soybean use in 2014-15 easily notched a new high.
Soybean exports are set for a new record in 2020-21, but sales have notably dropped off in the last month or so as prices remain high.
(The opinions expressed here are those of the author, a market analyst for Reuters.)
Editing by Matthew Lewis
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