Unless there is a secret stash somewhere in Argentina or Brazil, the current-season soybean production deficit could soon drive record-high prices even higher. Even before the USDA announced the tightest end-stock levels in five years, 175 million bushels compared with 573 million bushels last year, July beans traded at $13.06 in early January. The rally had been spurred by ongoing droughts in Argentina and China, smaller production levels out of Brazil, diminished U.S. carryover from last year and increased demand out of China, observes Anne Frick, senior oil seed analyst for Prudential Financial. Plus the weak U.S. dollar is driving up prices of dollar-denominated commodities, and rising inflation is pushing the perception that commodities are a good hedge, driving up their popularity with speculators.
The situation is unlikely to go away anytime soon, as soybeans and corn, also near record highs, are battling for acres. During February, March beans could trade between $13.60 and $11.75, Frick says.
“You have to believe the numbers, because that’s what you’re going to trade,” says Richard Crow of Crow Trading. And based on the current numbers, he says that $6 corn and $15 beans are not out of the question. Although it would be difficult in an election year, he expects to hear talk about opening the conservation reserve program to expand acreage. If that happens, beans could trade limit down for two or three days.