I am back in the office and it is very slow in the markets right now. Tomorrow (New Year’s Eve) is expected to be a real snoozer. One thing I like about the downtime during the holidays is it gives us a chance to look forward to what we should be looking at in 2016. John Payne and I recorded talked about this during our new Inside Commodity Podcast today and you may listen to it here:
I put together a Supply and Demand table for 2016-2017 (new crop) corn and soybeans and it was fairly neutral for corn but bearish for soybeans. We talk about it in the podcast and I included the table below.
Here are some of my takeaways in Corn and Soybeans
1) With 88mm corn acres and a trend line yield of 169 bpa, the corn carryout for new crop is barely changed year-on-year at 1.800 billion.
2) If get 88mm acres and a 169ish type yield, Dec 16 Corn probably trades to the low to mid $3 range by harvest but it is hard to see us trade below $3.00 unless we get record yields and 90+mm acres.
3) On the flip side if we lose acres or lose yield, things can get tight for corn. A 5% loss in yield could take out 750mm bushels and then the carryout is closer to 1.0 billion bushels. In my opinion that translates to $5.00 corn in our current economic environment when you take into account the value of the US Dollar, price of oil, etc.
4) Bottom Line on Corn: With normal weather corn heads lower over time to the low-to-middle $3.00 range but with adverse weather and/or material demand increases corn could move higher to $4.00 and in a major weather event that reduces yields by 5%, corn could trade $5.00.
1) With 84mm soybean acres and a trend line yield of 46 bpa, the soybean carryout for new crop increase almost 200mm bushels to 658mm bushels.
2) A 650mm carryout and 18% Stock/Usage ratio most likely means $8.00 soybeans at least and could be lower depending on the South American crop. We are hearing some big numbers out of South America and if that comes to fruition the worst case scenario for beans is in the $7 area.
3) If we have weather issues in the US it will take a lot to get soybeans to $10.00. A 10% reduction in the yield gets the carryout to 300mm bushels and that could justify $10.00 soybeans. A 10% loss in yield is a lot to ask for. A 15% reduction gets us to 150mm bushel new crop carryout, that causes price rationing, and that is when you can see “beans in the teens”.
4) Bottom Line on Soybeans: With normal weather in the US this spring/summer and a big South American crop, Soybeans could still trade another $1.00 to $1.50 lower. Soybean stocks in the US are set to expand and become burdensome on prices. Because existing and projected stocks will be so large, it will take a major weather event that does widespread damaged to get beans back to $10.00. It will take an agriculture disaster to get back into the teens.
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