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Market Commentary for 6/25/21

This week the corn and bean markets were dominated by upcoming weather uncertainty and Friday’s Supreme Court ruling against the ethanol industry and potentially the entire renewable fuels industry. Plus, July options expired on Friday with some traders under water with their positions after this week’s price set back.

Looking Forward

Everyone is waiting for Wednesday’s USDA report, arguably the biggest of the year, that will provide estimated total planted acres and quarterly stock numbers. Once the market better knows planted acres and remaining old crop supply, balance sheet estimates become clearer. I am estimating 93.1 million planted corn acres, a 2.5 million acre increase from March, and 89.1 million bean acres, up 1 million from March.

Beans – Comparing 2021 and 2014

The following chart shows a similar market situation developing between 2021 and the prices of beans in the summer of 2014.

Looking back to understand the price structure from 2014 one must first look at the 2013 bean crop. The harvest of 2013 produced a yield which was only 1.5 bushels below trendline. This turned out to be nearly 4 bushels better than 2012 and above the previous 5-year average. However, despite this near record harvest, 2013 exports also had a record increase of 23% from the previous year and demand from the crush market was higher than the previous 5-year average too. This increased demand resulted in the smallest carryout and stocks to use ratio ever for the bean market.

Then in March of 2014, bean planted acres were expected to increase around 3 million acres year over year as demand for beans was expected to continue to be high. However, the US farmer planted a lot more beans than the trade had expected and after the release of the USDA June 30th acreage report there were 6.5 million more acres planted than the year before. This sent November bean prices downward, as seen in the chart below:

In 2014 the June acreage report was followed by nearly perfect summer weather and the national yield ended up being a record size crop at nearly 1.5 bushels per acre over trendline yields, or 3.5 bushels per acres more than the previous near record year. Despite dramatic increase in crush and export demand in the 2014 marketing year, prices continued to trade lower.

Interestingly, the final price close just last Friday was near where 2014 was trading before the big report. So, it raises the question if we are on the same path as 2014?

How Many Acres Have Been Planted?

This is why the report on Wednesday is going to be so important to price direction. I created the chart below to show several supply and demand scenarios that could occur depending on varying planted acres and yield potential.

The USDA’s current new crop projection has the tightest stocks to use ratio ever this early in the year, which allows no room for error in the yields. Any late summer weather issue could reduce yields and decrease carryout to record low levels, which would require higher prices to ration demand.

The USDA has been known to underestimate demand early in the marketing season. Therefore, in the chart below I have increased export demand to match the average pace from the two seasons before the trade war began. This would still be less than what was export this previous year.

I have left the crush demand unchanged from the USDA estimates because the current estimated increase in crush demand is in line with historical trends for that category.

This also assumes South American weather conditions from December to February are near normal and that South America also increases plantings this fall as currently predicted. Since 60% of global beans are produced in South America, any winter production issue could also result in a price spike down the road.

Should We Expect a Bean Rally?

In 2014 the US farmer planted 5 million less corn acres compared to what they planted in 2013. Nearly all those acres were switched to beans that year. Current estimates suggest that in 2021 corn acres will gain significantly more acres in the June report than beans. Current bean acre predictions in the trade for this report range between the USDA adding very few acres up to 2.5 million acres. Assuming 50 bushels per acre on those potential additional acres, carryout could swing by 125 million bushels. Combine that swing with the volatility of weather over the next 2 months and the potential for bean prices could still be anywhere between $10 and $15.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387

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