- The annual Pro Farmer Crop Tour got under way Monday, with all the usual fanfare and hoopla associated with a circus coming to town.
- We already know the commercial view of 2024 US soybean and corn crops by tracking spreads since last September.
- As for the soybean crop, the market has already told us there were more acres planted and that the crop associated with those acres keeps getting bigger, with yield estimates irrelevant.
In case you missed it, the Pro Farmer Crop Tour is taking place this week. It’s understandable if you hadn’t heard the news, as it is a quiet little research outing done with little fanfare for the sole purpose of expanding the public’s knowledge of US crops. And if you believe any of that, I’ve got a mountain villa in south central Kansas to sell you. The reality is it’s a weeklong circus geared toward flooding social media with pictures and posts of every field stopped at along the way, despite nearly all of them looking identical. There is also plenty of “Corn Porn”, meaning thousands of photos of corn ears that didn’t fill out to the tip. And if that weren’t enough hard-hitting data for you, there is also pictures of what everyone has to eat and drink EVERY MEAL OF EVERY DAY. Intriguing stuff, right? I always get a laugh picturing some of the city slicker interns sent out as scouts wearing their high dollar “field” clothes while looking for a fancy coffee shop and café for their daily couscous salad. While it is a far cry from what we used to call “Drunks Across Kansas”, the end result is still the same.
For those of you actually interested in making money in markets, let me give you a tip: Stop following members of the BRACE[i] Community who constantly proclaim the importance of such nonsense. Those of us who actually understand the concept of markets telling us what is going on at any hour of any day already know the status of the 2024 US corn and soybean crops. I’m willing to bet your favorite grandstanding BRACE member didn’t share that with you on social media. Why? It’s simple. They don’t know. It’s not rocket science though.
Let’s start with the 2024 soybean crop. During the six months from the beginning of September 2023 through the end of February 2024, the November soybean futures contract (ZSX24) bought planted area away from the December corn contract. Based on weekly closes for those six months, the Nov24 soybean/Dec24 corn futures spread (soybean price divided by corn price) averaged 2.46. The previous 10-year average for those same six months (September through February) was 2.4[ii]. Reading this study is simple: If the current year’s spread is above the average, then soybeans are buying planted acres away from corn. If the current year’s spread is below the average, then corn is buying planted acres away from soybeans. Note that our next tracking period is set to begin when we turn the calendar page to September.
We knew, then, at the end of February US producers were set to plant more soybeans, at a time when monthly available stocks-to-use[iii] were already starting to grow. Given that, we knew heading into planting season that available old-crop supplies were increasing (in relation to demand), but US producers would likely plant more soybean acres anyway. What did this mean for expected (by the commercial side of the market, not USDA) new-crop supply and demand? As we track new-crop futures spreads (starting with the November contract, ending with July issue) from March through August, we see the first weekly closes last March were all bullish (below 33% calculated full commercial carry). If we want to focus on initial expected crop production (in relation to expected demand), we look at the Nov24-Jan25 futures spread (blue line on chart). The first weekly close of March saw this spread covering 31%, below the 33% threshold due in part to all the uncertainty that lay ahead (weather, Brazil’s crop, Chinese demand, etc.). However, by the third weekly close of August, last week’s close, the Nov-Jan spread covered a bearish 67% cfcc.
What does this tell us? Available supplies at harvest are expected to outweigh initial new-crop demand.
- At the end of July, again based on the National Soybean Index ((ISY00) priced at $10.00, the month-end available stocks-to-use had climbed to 15.2%.
- At the end of the third week of August the NSI had fallen to near $9.18, putting as/u at 19%. Think about that for a moment.
- US producers had planted more soybean acres this past spring, as indicated by the Nov24 soybean/Dec24 corn futures spread.
- New-crop futures spreads have been in an uptrend since the first weekly close of March, meaning the percent of calculated full commercial carry covered has increased. B
- The fact Nov-Jan reached the bearish threshold of 67% shortly before harvest tells us the old adage of “Big crops get bigger” was holding true during 2024.
The bottom line then, for those of us who watch markets to make money instead of social media stars, is the 2024 soybean crop is going to be big, and demand is not showing signs of increasing to keep up at this time. Could this scenario change? Absolutely. That’s what markets do, they are in a constant state of change (except for maybe corn and bonds).
Lastly, I’ve said this many times before, mostly with the effect of shouting into a Kansas wind: It does not matter what yield estimates are for any crop. In soybeans, it could be 20 bushels per acre or 80 bushels per acres, both are equally irrelevant. What matters is the commercial view of SUPPLY AND DEMAND, shown to us with:
- National Cash Indexes
- Basis markets (both local and national)
- Futures spreads
Once one can accept that reality, understanding markets in general gets easier.
[i] BRACE = Broker/Reporter/Analyst/Commentator/Economist folks who are the equivalent of ambulance chasers in the legal field.
[ii] Those same members of BRACE are stuck on the decades old belief the key average is 2.5, forgetting how averages work. Is anyone surprised?
[iii] Recall I calculate available stocks-to-use based on the National Price Indexes (national average cash prices) for the various grain markets. This makes more sense than the ending stocks-to-use based on USDA’s made up supply and demand numbers the rest of the industry talks about.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
