Jon Scheve
November 9, 2020
Futures - Beans
With beans trading above $11 this week, many in the trade are wondering where futures are headed next. In the last 9 years that beans managed to hit $11 in a marketing year, prices went on to quickly trade above $12. Both technical signals and fundamentals are suggesting it is a real possibility. The following summarizes some big factors impacting bean prices right now.
Brazil Imported US Beans This Week
When the world’s largest bean producing country buys product from their chief competitor, it raises heads….and prices.
Many US Farmers Were Selling Beans Through Harvest
On October 6th corn was only $3.80 but beans were trading $10.50. This meant the market was encouraging farmers to sell beans off the combine and store corn during harvest. Plus, grain traders throughout the Midwest tell me that storage piles at ethanol plants are limited and many bean processors reported extremely long lines during harvest. This suggests that many farmers took advantage of the rally in bean prices and sold a large portion of their crop.
How Much Have Farmers Sold?
Recently a Brazilian advisory group stated that Brazil’s farmers are already 55% sold of the bean crop being planted right now. Typically, it’s closer to 30% at this point.
In the US some grain traders are saying farmers are 60%-80% sold on the crop just harvested.
So, if the market continues to rally, and the two largest bean producing countries have large chunks of production sold, there might not be many beans left to sell. Those that do have beans left in the bin may only want to sell their remaining beans in the teens.
Basis - Beans
The bean basis market has been steadily increasing during this recent futures rally, and it seems likely the trend could continue. Here a couple of potential factors:
Exports & Elevators
Elevators are selling beans as fast as they are buying them. There are several reasons for this:
Strong export demand has produced very good margins for shipping the grain out quickly
The carry in bean futures tells elevators to move them right now
Basis values across the country are the strongest they have been in nearly 5 years
Soybean Meal Demand Is Strong Right Now
Processors are making good margins grinding beans as fast as they can. Additionally, there are reports most processors have only covered their bean needs through early January. If strong meal demand continues, processors may be competing against exporters for supply, and by late winter, they may have difficulty sourcing beans if the farmers is as far along on selling beans as some have suggested. This could keep basis values strong the balance of the year.
Bottom Line
The bean market looks very strong right now. While logistics, trade relations, currency issues and South American weather could derail a bean rally eventually, higher prices in the short term seems more likely.
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