While soybean values have continued to rally in recent weeks, much of the appreciation we have seen in values has been on the nearby contracts and not as much on the deferred contracts. In fact in recent sessions we have seen gains of nearly twenty cents on the spot contract while the new crop bids for next year have struggled to make it into positive territory. This is a good indication that soybean demand is driving the current rally. 

The debate in the market now is if new crop soybeans are going to start to rally to encourage more plantings. At the present time the price ratio between November 21 soybean futures and December 21 corn futures is 2.5:1. This means it takes 2.5 bushel of corn to equal the value of one bushel of soybeans and is not conducive to the increased planting of one crop or the other. If the soy complex needs additional acres this spread will need to widen to 2.7:1 or greater to do so. Over the next few weeks we will start to see farmers across the United States locking in their new crop inputs and this price spread will become more of a topic. 

Cash values of US soybeans and corn continue to run at historically high values. The current average US corn basis is 22 under December futures. This is the best cash corn basis we have seen on corn in the past seven years. The average soybean basis in the US is 43 cents under January futures, which is also the best basis in the past seven years. Basis is the difference between futures and cash bids. We have started to see more volatility in basis values though as even where coverage is needed, buyers are weighing their margin potential when posting bids. 

While the recent rally in futures has been welcomed by many in the cash grain industry, it has caused economic issues for buyers and processors, mainly in feed. Many traditional corn buyers around the global market have now started to opt for cheaper feed grains. The main one of these is China who is now reportedly considering releasing government stored inventory into the domestic market to offset high import prices. This is starting to temper the global feed grain market rally, even with tightening supplies of corn. 

Trade is keeping a close eye on global wheat values. The Black Sea market has been driving global wheat values, especially when it has come to sales into Asia. Australia has started to export its excess supply though which is considerably larger than in recent years. Right now, Australia is selling wheat into Asia at a $10 per metric ton discount to Black Sea sources. In turn, this is driving down the entire world wheat market. 

The most interest in global balance sheets right now is on US soybeans. Even though just tightened, the US carryout figure on soybeans could easily contract even more. US soybean sales for export are already at 80% of marketing year expectations. This leaves less than 400 million bu of sales over the next ten months to reach the yearly projected 2.2 billion bu mark. Even if sales slow, this number is likely to be surpassed. It is not hard to justify a true ending stocks figure of less than 100 million bu in this scenario. 

The bottom line in today’s market environment is that is favors sellers over buyers. This starts with the US farmer and how they are in no need of making additional commodity sales to generate cash flow. Large sales took place right at harvest and this generated enough cash flow for many to last until later in the year. In addition to these sales, many have received enough government payments to further restrict cash selling. 

We are now starting to see more adjustments made to South American corn production with an emphasis on Brazil. There is more uncertainty when it comes to the Brazilian corn crop, with some sources raising their crop estimates. A few of these are at 106 million metric tons which is even higher than the official number from the Brazilian government. The firms putting out the higher production estimates are also quick to say they will likely decline though if weather does not improve in the near future. 

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