Fundamentally Speaking

Changing South American Crop Estimates

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

Do changing estimates of South American corn and soybean production influence corn and soybean futures prices?

That would seem to be the case though analysis we have done indicates the impact on soybean prices is far greater than that for corn.

This graphic shows the change in combined Argentine and Brazilian corn and soybean production from the January to the June WASDE reports in million metric tons (tonnes) vs. the percent change in July corn and July soybean futures from January 1 to June 1.

We chose June 1 for after that the primary driver for corn and soybean futures is U.S. weather which has a more muted impact on U.S. grain and oilseed prices before May 31.

Actually the change in South American (using just Argentina and Brazil) is somewhat muted with outside macro factors and the domestic S&D having more impact.

Actually there is not a bad correlation between changing estimates of South American soybean production and the direction of July soybean futures at -0.526 and that is three times the correlation coefficient between the change in South American corn output and the movement of July corn futures at -.174.

The negative coefficient does signify that increases in production generally lead to lower futures prices and vice-versa.

The fact that the correlation for soybeans is three times greater for corn is based on combined Argentine and Brazilian soybean production accounting for an average 47% of global soybean output over the past ten years vs. 10% for corn.

(KA)

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Freeport IL
6/23/2015 | 11:13 AM CDT
Dollar? The dollar! Oh the dollar! - It is mysterious but yet it works like other commodities on supply and demand but with a lot of manipulation of supply. The brain stretching exercise - at least for us - is the relationship between currencies and what those changes mean. China's currency is basically linked to the dollar. If soybeans trade in dollars, the amount the amount China pays for soybeans is not affected by currency changes, only changes in the price of soybeans. The amount we (US) receive is not affected by currency changes just changes in soybean prices. The amount received by Brazil and Argentina does change with currency changes and soybean price changes. The stronger the dollar is the more they receive in their local currency, assuming soybean price and basis stay the same. So to try to answer the question; "Dollar?" we will say; "Until currency changes between the US and Argentina and/or Brazil changes the production outlook in Brazil and/or Argentina, the dollar does not matter. That may change as we get closer to decision time (planting time) in South America. We are not totally convinced the dollar will be stronger when South American decisions are being made. So basically our assumption is they will continue on their current trend without regard to currency changes, at least in the short term outlook." Our short answer is; "What?".
JOHN HUSTON
6/18/2015 | 1:26 AM CDT
Dollar?
Freeport IL
6/12/2015 | 9:49 AM CDT
A moment of confusion results when a student is asked; "What year are you?" This confusion mostly occurs after promotion of one year and before the start of the next. The student is unsure what year to declare: the one he left or the one he is going in to. (For some of us there is no confusion, the answer for both situations is/was the same. There is/was no promotion.) Grain marketing years can cause a similar confusion. We generally refer to them as "old crop" and "new crop". An old soybean crop is the one we harvested in the fall and is currently being marketed (crushed into meal and oil or exported). The new crop of soybeans is the crop that will be planted or was planted this spring and be harvest this coming fall and marketed the majority of next year. The confusion occurs on two fronts. One is after harvest but before planting. The other is when one tries to make the World the same cropping year. The marketing year for US soybeans starts September 1 - just before harvest for most of us. So generally once the crop is harvested, it becomes "old" crop and the "new" crop will be planted in the coming spring. Argentina's soybean crop starts April 1. Brazil's soybean marketing year starts February 1. This again is generally just before harvest for them. This time of year Brazil's and Argentina's new crop production (2015-16 marketing year - planted this coming fall in the Southern Hemisphere) should/could/might not have much of anything to do with November 2015 soybean prices. Their production and use estimates are penciled in by USDA for later adjustment. (The 2015-16 marketing year, in Brazil, will start February of 2016 and end January of 2017. This crop will start to be planted in September of 2015.) If we wanted to get a feel for the level of US soybean production needed to see $10.00 November soybean prices again, we can use a simple model that only looks at US production. (Other times of the year Brazil and Argentina's production would be included.) A drop in US production by something like 70 million bushels might make that happen. That would be something less than a bushel per acre drop in US soybean yield, loss of something like 1.5 million harvested acres or a combination of the two. It should be noted that South American ending old crop stocks become new crop beginning stocks and does impact November 2015 prices. Some think USDA's ending South American old crop soybean stocks are 1.3 million metric ton too low. This would result in a US yield around 1.5 bushels lower than currently projected, a drop of something like 2.5 million harvested acres or a combination of the both for November 2015 soybean to see $10.00. Looking at USDAâ?™s crop progress, one can calculate there might be 1.7 million less acres of soybeans planted when compared to the 5 year average. That does not mean they will not get planted. If the June acreage report does not catch a change in acres the next report that has a chance is the September Wasde. By then, the prospects of the new soybean crop in South American will enhance or diminish any change in harvested acres that may have occurred. So the later we go into a marketing year for soybeans, the more influence the new crop in South America plays on price. These numbers are provided as a very general indication of production changes that might be needed and are not any expectation of future results. A good student always knows the year they are until they become confused and that can be any of us or then again maybe just me. Freeport, IL