This Market Has 22 Hours: Soybean Planters Get Set to Roll

     Today in southwestern Ontario we had a record high of 89°F.  It was hot enough for me to plant soybeans but it was not dry enough.  Needless to say, the very hot weather that we had today reminded me of my favorite conditions to plant soybeans.  I like it hot when I plant soybeans.  It’s getting to be that time of year again.  Next week if the conditions are right, I hope to start getting soybeans in the ground.

It has been a very different spring, a very early spring. In fact, you could say that we had ultra early planting conditions, which were very favorable.  However, most of us do not plant corn in March.  April has certainly provided some good planting conditions and my corn is almost set to break through to the surface.  Cold temperatures have held everything back until now.  Hopefully today’s temperatures will jumpstart a trend.

If you follow me on Twitter or read my marketing writings you will know that I think it is the year of the soybean.  With new crop cash prices at approximately $12.75 a bushel down from $13 only a week ago compared to $4.50 corn, I’m thinking the switch should be on to soybeans.  However, not everybody is me.  It is well known in Ontario farm country that we all like growing corn, so switching to soybeans is such a psychological change for many of us.

In Ontario soybean yields are increasing at .32 bushels per acre per year.  At the same time corn yields are increasing approximately 2.3 bushels per acre per year.  In the last 5 years, it is been approximately 5 bushels per acre per year.  In other words, despite the price of soybeans, hybrid corn is agronomic-ly superior to soybeans.  With our eyes closed, all things equal many of us can expect consistently high corn yields and not so much for soybeans.  So give me a very high price for soybeans and that’s when I’ll really start thinking about switching.

The argument is compelling for soybeans.   DTN Market Analyst, John Sanow in his recent column “How Much is Enough” put it this way.  “The strengthening inverse in futures spreads all the way out to November 2013 states unequivocally that it doesn’t believe acreage will come in anywhere near a level needed to prevent a critically tight stocks situation through the 2012-2013 marketing year.”(John Sanow)  In other words, our commercial end users know there aren’t enough soybeans and this is a problem.

Under one scenario the stocks to use ratio for soybeans will drop to 4%, the lowest on record.  We also have the noncommercial speculators holding a record number of long positions.  That position has weakened over the last day or two, but it is clear soybeans have a lot going for them.

In a market like this where we are seeing extremely healthy prices sometimes it’s easy to forget maybe we should sell now.  I’ll let you think about that one for a minute.  Of course one of the problems we have in Canada is the value of the Canadian dollar, which is currently trading at approximately a $1.01 US.  Of course it has a negative effect on our cash grain prices and effectively takes the fun out of imagining record cash prices.  What it means is that despite soybean futures prices in the teens, that may not translate into the same prices for Canadians as our loony is feeling the testosterone.  The soybean basis in Canada is particularly sensitive to foreign exchange on our Canadian dollar.

Despite our issues with the Canadian dollar, it is hard to imagine Ontario farmers responding by planting more soybeans this year.  Is the nature of the beast with a good planting weather we had in April guys would stop planting corn.  Last fall we got about half the Ontario wheat acres in the ground because of wet conditions.  So there are about half a million Ontario acres looking for a home this spring.  I expect approximately 2.7 million acres of soybeans to be planted in Ontario and 2.1 million acres of corn.

Adding to these tight soybean fundamentals was the announcement this past week from the Chicago Mercantile Exchange that effective May 20, 2012 they will initiate 22 hour trading of agricultural commodities.  So in other words, the market will almost never be closed.  There will be no more waiting until 10:30 in the morning to see what the market is doing.  The only time it will not be open is from 4:00 to 6:00 PM, Monday thru Thursday and Saturday and most of Sunday.  So get those standing orders for grain ready.  When the USDA announces actual plantings on June 29th, it will be like the movie “Trading Places”.

What’s it all mean?  It means soybean prices will redefine volatility.  The CME is providing a forum in their new trading hours to make that volatility even more extreme.  Meanwhile, even at reduced levels, corn prices are still very profitable.  It means we should have a good year, however it might be a bit more exciting than usual.  Just make sure, as those planters roll, to work safe.  It never says on a tombstone, I wished I’d work harder.