70 Cent Limit Move In Soybeans Draws Near: Hither the Black Swan

    It is that time of year again.  The wind is blowing at 80 mph, it is very cold and there is even some snow in the forecast.  I guess it is time to plant corn.  I’ve been hard at it since last Monday.

In Ontario this year you could have started to plant corn in March.  I took a short vacation to Florida during March break and was actually told it was warmer back in Ontario.  I actually follow a field of corn on Twitter that was planted on March 20 near Petrolia Ontario.  I don’t think there has been much growth since then, I think I’ll take April 20 over March 20 any day for planting corn in Ontario.  Needless to say, it is been so cold this week, I’m sure my seed corn is shivering in the soil.  Give me another day and I’ll be done planting corn.  Last year that didn’t happen until June!

The corn market is so yesterday.  Or at least it seems that way with soybeans getting all the publicity lately.  The long-term outlook for the corn market continues to be down but the old crop supply and demand situation is increasingly tight.  However, our noncommercial speculator friends aren’t much interested in corn when soybeans have so much more opportunity to shoot higher.  It seems our investor friends can understand a short crop in South America and a huge perceived new corn crop seemingly already in the bin.

In the last edition of Market Trends which I write for the Grain Farmers of Ontario, I cautioned my readers by telling them the noncommercial speculative position in soybeans was at record levels.  So as we move ahead we should tread gingerly on the sales trigger.  With a $.70 limit in soybeans, you can bet that we will see that the spring.

That led to this conversation I had this morning.  While planting corn my crop advisor stopped by to make sure I was planting his variety.  He mentioned as he walked over to the tractor that he was pleased because the corn was already sprouted even though it only been planted about a half hour.  I guess you have to be there. He then asked how high soybeans were going to go.

I shot back by saying about $16.70 a bushel for soybeans.  I said that because I saw it somewhere on twitter and I wasn’t expecting the question.  My crop advisor friend retorted that in his opinion if that is the case basis levels would be every bit as negative as futures are positive.  In other words, soybean futures might go crazy but processors in Ontario are not going to pay ever-higher prices for soybeans.

I agreed with his assessment.  It is true that soybean prices right now are higher because both the commercial and noncommercial side of the market are getting into the game.  On the one hand, you had the South American crop continue to get smaller this week, as there was one report that said the Argentinian soybeans crop would be below 40 MMT.  Of course we also had the erroneous reports that Brazil was going to temporarily ban the export soybeans.  This has put obvious juice in soybean fundamentals.

However inconvenient the lack of soybean supply has become to some, China is still devouring soybeans at record rates.  The production problems in South America has led Chinese soybean buyers to purchase ever more US soybeans which again is helping the price.  Our noncommercial speculative friends can see this and are simply piling on.  Meanwhile, I’m out there in the cold planting corn as fast as I can.  Ditto across Ontario, Illinois and Ohio.  What are we thinking?

I’m thinking that corn might have another run in it.  The ship is just getting too crowded on one side now for its own good.  You cannot blame our speculator friends, they see all the supply concerns with soybeans and a great demand compared to this huge 95.5 million acre corn crop presumably a fate accompli.  You know there has to be a reckoning.  The market will surely take care of it before June 29th, if not on that date when the USDA announces their actual planted numbers.

The landscape between now and then will surely be volatile.  I expect a $.70 limit move in soybeans maybe more than once leading up to June 29 when we find out how many beans got planted.  Nobody saw the South American drought coming.  Is there another black swan around the corner?  I should be done planting corn tomorrow.  There is no need to keep going.  With these markets swirling around me, I just hope that is a good decision.