Fundamentally Speaking

Joel Karlin
DTN Contributing Analyst

While corn prices have retrenched substantially over the past two months, soybean meal futures have been quite a bit more resilient.

The tightest soybean stocks to use ratio ever along with ideas that the carryout could get even smaller due to an export and processing pace running well above the latest USDA projections has also been supportive.

We note that the cash soybean meal basis has also strengthened recently in response to a slowing crush rate.

Corn prices meanwhile have been influenced far more by the bearish implications of new crop even with demand still solid.

Outstanding weather so far in much of the Midwest and Plains has the majority of the trade convinced that the USDA's record 2013 yield projection of 165.3 bushels per acre will not only be attained but even exceeded.

Even though soybean conditions are just as good, in fact the best ever as of June 22, their key part of the growing season is not until August and reports have surfaced that some of the young plants in the NW quadrant of the Corn Belt are suffering from excess moisture.

As consequence, the soybean meal-corn futures ratio expressed on a per ton basis remains very close to all-time highs, changing little from this situation we described a few months ago.

This graphic shows the soybean meal/corn ratio on a per ton basis with the average and plus and minus one and two standard deviation lines.

The current ratio close to 3 to 1 is well above the average, well above the one standard deviation line where prices reside only 16% or less of the time and even above the two standard deviation line meaning ratios this high have only been seen 2.5% of the time or less, lower than a 1 in 40 chance.

The chart shows ratios this high have only been seen about four time periods since 1996.

We suspect that at some point this ratio will correct and revert back to the long-term average close to 2.10, perhaps later this summer when corn starts to discount a big crop and soybeans react more forcefully to good weather assuming that continues.

(KA)

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