Huge crops in the forecast | Farmers urged to look at options contracts as prices poised to fall
“Until we get to a South American crop.”
That line, which an analyst used to describe a fairly bullish outlook for soybean meal, was heard in various forms during the recent Cereals North America conference to describe the market danger that threatens to snuff out an OK winter for Canadian farmers.
Analysts painted a picture of a fall and early winter with good demand for vegetable oil crops and a possible market rally for wheat.
However, all bets are off once the South American harvests begin.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
“It’s really a constructive situation, at least not a bearish situation now, but when we get out forward, we’re going to have record (world soybean production),” said Karl Skold of Bunge North America.
“You have a very good crop (supply) situation.”
Skold said demand for U.S. soybeans and its components is strong, and exports are surging.
“It’s not just China, it’s everywhere,” said Skold.
Biodiesel margins are good, so processors will keep making it. Livestock feeders are earning great margins, so they’ll keep feeding protein meals. In every area, soybean products are rewarding to make, so demand is steady.
Alex Bos of Louis Dreyfus Commodities said he was bullish about wheat this fall and winter and expecting a rally because of strong sales and shrinking U.S. stocks.
Many think wheat can’t hold a $4 per bushel premium to corn, but in a year with bullish fundamentals for wheat but not corn, then it’s possible, he said.
Bos said the U.S. situation is important for wheat because the world tends to turn to the United States when it runs short. With much of its excess supplies gone, the world can’t do that for much longer this year.
“We’ve lost the U.S. as the world’s residual wheat supplier,” said Bos.
Analyst Greg Kostal said canola also has strong demand for seed, oil and meal in Canada, the U.S. and overseas markets, so things are OK right now.
However, the South American soybean factor looms over everything.
“When you get into February, what happens with the whole oilseed chain is you can instantly access about 10 million tonnes of cheaper origin Brazilian soybeans,” Kostal said.
“Therefore, the opportunity for North American front-loaded demand instantly falls off the face of the Earth.”
AgResource analyst Bill Tierney agreed.
“Once that South American crop comes in, we’re going to have ending stocks globally much larger than they were last year,” he said.
“It’s that expectation of a very large supply that’s going to keep a cap on how prices are going to get (during the winter).”
Some analysts encouraged farmers to act to protect forward prices because the huge South Americam crops could ravage prices for the rest of 2013-14 and demolish prices in 2014-15.
Daniel Basse, president of AgResource, said farmers were shy about pricing grain during the growing season because of production worries. Even now they aren’t rushing to price because they dangerously assume prices will improve and they can afford to wait.
“Farmers have really missed the market this year,” said Basse.
“The farmers, trained by years of high prices, did nothing.”
Tierney said farmers must realize prices can go much lower. He recommended looking at options contracts to protect prices into 2014-15 because they are much more affordable than usual.
“Options have never been this cheap in something like 15 years,” said Tierney.
Asked to guess at 2014-15 prices, Kostal said canola could be $10 per bushel at harvest and hit a low of $9 per bu. during the 2014-15 winter.
For No. 1, 13.5 percent protein wheat, “six bucks is going to be a reasonable average next year.”
