The News & What it Means – Pessimism in the Soybean Markets & Tumbling Oil Prices

By John DePutter & Dave Milne – May 5, 2017

  

The news:

With big crops being harvested in South America and U.S. planted area set to increase dramatically, American producers have become decidedly more downbeat on soybean price prospects.

– Syngenta Farm, May 2, 2017
 

What it means:

The price pessimism is not misplaced.
 
The corn-soybean price ratio this past winter and into the early spring was encouraging North American producers to plant more beans in 2017.

 

And now, with record large Brazil-Argentina soybean production becoming a reality, and the potential for poor planting weather in the Midwest to swing even more U.S. acres into soybeans, not to mention a forecast from the International Grains Council last week for 2017-18 global soybean production to hit a record 348 million tonnes, this is a market that looks increasingly tenuous.

 

If China’s appetite eases off after a ravenous several years and U.S. farmers reap huge yields again, just as did they did a year ago, look out below.

 

But wait. Hasn’t all this been known for a while? Is it old news?

 

Maybe soybean futures are low enough, or almost low enough, to account for the heavy supplies.

 

That’s part of what market analysis is all about: Determining when a bear market has gone far enough to account for pretty much all the bearish news.

 

Check out our latest views on whether the soybean market needs to go lower, or whether the bearish outlook is already “in the market,” from the Ag-Alert analysts.

 

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The news:

Oil prices tumbled about 5 per cent on Thursday (May 4), breaking below US$50 a barrel to the lowest since late November. The downfall came on signs that OPEC and other producing countries would not take more drastic steps to reduce the world’s stubbornly persistent glut of crude.

– Financial Post, May 4, 2017

 

What it means:

There’s good and bad news here for Canadian farmers.

 

Although oil did manage to rebound on Friday (May 5), this market has been mostly chopping sideways around US$50/barrel for most of the past year – well down from its July 2008 peak of just over $146.

 

First the bad news: As a benchmark commodity, oil sets the tone for a number of other markets.

 

Indeed, weakness in oil generally spills over to ethanol – which in turn spills over to corn, a leading agricultural market which has plenty to say about the level at which soybeans and wheat trade.

 

As well, a malaise in oil sometimes portends general weakness in the broader economy, which isn’t good for agricultural commodities from a demand perspective.

 

Now the flip side: Cheaper oil makes less expensive fuel, a major input expense for farmers.

 

Plus, weakness in oil tends to help keep the value of the Canadian dollar versus the US currency in check. And because most Canadian farm commodities are sold based on American dollars, the lower loonie means producers are money ahead when those same crop and livestock receipts are converted back to Canadian dollars. In fact, ongoing weakness in our currency has been hugely supportive for Canadian farm income the past three years.

 

Bottom line: Canadian farmers owe a lot of thanks to the weak loonie but it’s not something to count on forever.

 

[Latest flash: The futures market for the Cdn $ actually posted a bullish chart reversal Friday.]

 

This week’s Ag-Alert newsletter contains the latest analysis and chart action for crude oil and the Cdn $.

 

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