Have crop prices hit bottom?

Analyst thinks grain and oilseed prices will rebound in early 2017

Sean Pratt reports from the Oilseed & Grain Trade Summit in Minneapolis, Minn.

MINNEAPOLIS, Minn. — Grain and oilseed prices have bottomed out, say analysts.

“I do not think that the soybean market or the corn market will make a new low,” said David Hightower, founder of the Hightower Report.

“I think the low is in.”

That does not mean he is bullish. In fact, for the next 60 to 90 days he is rather bearish because of a good start to the planting season in South America.

However, he believe prices will not drop back down to where they were, and some time in January, February or March, the market will stop embracing the bear case and start considering the bull case.

“The bear camp has had its best shot,” he told delegates attending the 2016 Oilseed & Grain Trade Summit.

Hightower said unexpectedly strong soybean demand from China and poor palm oil production are propping up soybean prices.

Bill Lapp, president of Advanced Economic Solutions, said soybean prices have been resilient despite the biggest glut of grain and oilseeds on record.

That is because soy meal demand is growing by 3.6 percent a year while soy oil demand is increasing by 3.8 percent per year.

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Meanwhile, soybean yields are growing at only 1.5 to two percent per year.

“It means you need more acres of oilseeds every year,” he said.

In fact, the market needs an extra two million acres a year.

“It’s the rationale for keeping prices in the $9.50 to $10 (per bushel) range going forward,” said Lapp.

World stocks of corn, wheat and soybeans are burdensome, but China holds a lot of them and its stock statistics are notoriously unreliable.

“A couple of years ago China built stocks year-over-year in wheat and yet they imported more wheat than they had imported in two decades,” he said.

Global stocks do not look nearly as ominous when China is taken out of the calculation.

Global corn supply narrowed when drought hit Brazil’s second corn crop, which has lead to a strong U.S. export program in the last few months.

Supplies are heavy but nothing a disaster can’t cure.

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“One drought and we are significantly higher from where we are today in terms of prices,” he said.

Lapp is forecasting an average corn price of $3.66 per bushel for nearby futures in 2016-17, with a 10 percent variance on either side of that number.

“We’ve bounced off the bottom,” he said.

“Very good export demand has propelled us from those lows. I don’t think we’re going to go back and see those lows again.”

His soybean price forecast is $9.80 per bu. for nearby futures. Lapp believes that will be appealing enough to pull two million acres out of corn and into soybeans next spring.

U.S. wheat yields this year were astounding, and carryout will be the largest level in 29 years at more than 1.2 billion bu. That has pushed prices down to where there is a narrow spread over corn.

“It’s as close to being lower than a snake’s belly in a wagon rut as you can get,” he said.

Lapp is forecasting a three million acre reduction in the U.S. wheat crop. One million will go to fallow, one million to cotton and rice and the remainder to corn and soybeans.

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