Soybean crush, meanwhile, sits below trade estimates
If you had taken a straw poll of merchandisers a month prior to the U.S. Department of Agriculture’s (USDA) May WASDE report, most would have been focused on the lack of carry and cheap basis in the bean markets and a return to carry structures in the corn market.
However, since the release of the May WASDE report, markets have taken notice of the now-shrinking available corn stocks and the slower pace of planting in some key areas of the Corn Belt.
While very little to-date has changed to U.S. corn production estimates, the divergence in South American corn crop estimates from the USDA’s own estimates, coupled with Argentina’s leaf hopper issues, has prompted many including the USDA to now increase U.S. corn demand. What was shaping up to be a build-out to 2.5 billion bushels-plus, now has the USDA estimating very little change in year-on-year corn stocks for 2024-25.
If we add in more delays to the half-planted corn crop – and with current weather models keeping key areas of the Corn Belt wet – the burdensome stocks now will require a keener eye as we transition to the summer months.
Soybean Struggles
On the other hand, soybean planting progress has been mostly in line with averages and expectations. Coming out of April downtimes, the market was shocked with a very low National Oilseed Processors Association crush figure which was below all trade estimates. Soybean export demand seems lethargic, at best. We’re also faced with a 19-year low in new crop exports to China.
All things considered, and as referenced in the prior edition of the Grain Journal by a colleague, July-forward soybean spreads have begun to relax, led by weak cash bids from processors and lack of export demand. Warehousemen in the northern plains, facing breaking processor bids, were looking for outlets for their ownership.
The BNSF came to the rescue and introduced a rate reduction into St. Louis, giving beans that were essentially trapped in the Northern Plains a backstop into the delivery market. Processor basis, which had widened considerably, now could be on the offensive with another market to compete with despite very little PNW export draw.
As of this writing in early June, we are still about 30 days from July deliveries with cash markets converging toward deliverable values. The wider draw territory of deliverable soybean stocks will now give warehousemen an alternative if processor bids refuse to firm. The increase of stocks in to the deliverable market could continue to put pressure on July-forward spreads if the cash structure remains unwilling to converge against July futures.
The most recent commitment of traders report showed commercial users now net short soybean contracts with farmers rewarding the early-May board rally. As the farmer turns back to getting the last of the crop planted, and if the market gets another healthy round of soybean export flashes, this is a reminder to remain flexible in your merchandising plan. Despite cash markets remaining below deliverable value, if soybean spread structures stay inverted, it will warrant reducing any basis length and getting into a short(er) basis position.
Alex Grohsmeyer is a broker and consultant with Advance Trading Inc., Bloomington, IL; 309-664-4313.