U.S. soy, corn futures seen on pace for extreme lows

After a drought-filled growing season in 2012-13 that pushed soybean and corn prices extremely high, U.S. soy and corn are on pace to produce bumper crops in 2013-14 — and both markets are seeing a huge reversal in prices because of it.

With each crop entering important development phases and receiving favourable weather, Sterling Smith, futures analyst with Citigroup in Chicago, said prices are about to take a major dip.

“Looking at new-crop November, soybean prices have dropped rather noticeably the last week or so,” he said. “We can attribute that mostly to very good growing conditions throughout the vast part of the U.S. We actually saw crop conditions improve one per cent in the good-to-excellent category. The crop is setting itself up to be potentially a very large harvest.”

Smith jokingly said it would take Iowa being swallowed up in an earthquake before the soybean market would firm, but added that if there was premature frost, the market could see a lift.

“The only thing I can see that would firm the market right now would be some sort of premature frost in growing areas, but that’s not happening realistically any time soon,” he said. “Right now, the best thing we could hope for is some short-covering rallies to come in and maybe stabilize prices a little bit.”

Assuming the soybean crop gets to harvest without any significant issues, Smith said he could see prices drop into the US$9.50 per bushel range.

Weather has been the hot topic in the corn market now that crops are entering the pollination phase of development. Unlike last season, where extremely hot weather put major stress on the crops, corn is receiving cool, wet weather that is benefiting growth, Smith said.

“Weather for corn has been very good and we’ve had good growing conditions in a lot of places,” he said. “The two areas that we were concerned about for corn production were Nebraska and Iowa, but they did pick up some timely rain.”

With the U.S. Department of Agriculture forecasting record corn production just below the 14 billion-bushel mark, Smith said he doesn’t see the market strengthening anytime soon.

“Prices on corn, especially new-crop, are going to remain heavy as we are going to be harvesting a bumper crop,” he said. “I think we’re going to be closer to 14 billion bushels than going over the mark. However, if we do see good rains in areas that have been stressed, and there are no issues at harvest, there is the potential that we get over that.”

Smith also noted prices could drop significantly lower than what we are already seeing.

“I think we could see some sort of spike low between US$4 and $4.25 (per bushel) range,” he said. “I think that when we get down to that point, the market is going to probably be as short as it can get, and with the ethanol demand, there should be people willing to scoop things up.”

— Brandon Logan writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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