Todd's Take

Back in March, after USDA published its Prospective Plantings estimates, I titled a review of that report, "Soybeans Take One for the Team" as the bulk of acreage cuts estimated for corn and wheat resulted in increased soybean acres. After 2017's wet spring made corn planting difficult, concerns ran high that soybean plantings might go even higher than the 89.5 million acres USDA estimated in March.

Noncommercial traders were so bearish they posted their largest net-short position in soybeans on record ahead of USDA's June 30 Acreage estimate. But they misjudged.

On June 30, USDA stuck with its 89.5 million acre estimate and soybean prices rallied sharply on the news. Traders responded by covering their shorts, but they have been slow to react. As of July 3, noncommercials were still net short 59,429 contracts, even though August soybean prices reached a new six-week high and November prices reached a new three-month high.

As of Friday, November soybeans posted their first weekly close above $10.00 since March, twisting the knife for any shorts still lingering in the market. In just two trading days, the technical trend turned from bearish to bullish while the fundamental outlook for soybeans went from bearish to uncertain.

While this latest soybean rally was sparked by misguided trader hubris, the more powerful concern fueling soybean prices in 2017 is weather and, so far, those concerns are not going away. As of July 10, DTN's seven-day forecast expects a few days of showers in the states near the Great Lakes, but other areas remain mostly dry.

Rain continues to be especially scarce in the Dakotas where drought conditions are severe to extreme and are responsible for sending spring wheat prices to their highest level in four years (see the July 7 article "Northern Plains Drought to Continue" by DTN Senior Ag Meteorologist Bryce Anderson at http://bit.ly/… ).

A peek at the Climate Prediction Center's eight-to-14 day forecast from July 9 shows below-normal precipitation expected throughout the central U.S. with above-normal temperatures over most of the U.S., reaching the 90s Fahrenheit or higher in the northwestern Plains. So far, 2017 is not following the script of the past four years.

We all know that monitoring weather is a daily task and the outlook could change. But, to date, both corn and soybean prices are defying their bearish seasonal tendencies for this time of year. I couldn't help but think of another article I wrote Nov. 29, 2016 when grain prices were in the dumps, "Grain Demand Keeps Rising." (See http://bit.ly/…)

In the article, I made the argument that corn and soybean prices were unduly depressed at the time, punished by last year's big harvests, but also by four consecutive years of big harvests. The closing paragraph still rings true:

"I can't promise higher (corn or soybean) prices in 2017, but I do think it's important to keep in mind the consistency of the world's growing appetite. Good growing weather is a gift, which lately has become a curse for producers, but it won't last forever. At least, that's how it's been up until now."

It takes close monitoring, but here in early July, weather remains a bullish risk for corn and soybean prices. Ever so cautiously, we have to wonder if 2017 will turn out to be the year that breaks the streak of good crop weather and depressed row-crop prices -- as it already has for wheat.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman1

(CZ/ES)

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