Last Monday, the USDA released its newest estimate for planted acreage and grain stockpiles, and both showed vastly more soybeans than had been anticipated.
The supply in the United States was nearly 4 billion bushels on June 1, nearly 40 percent more than was in storage last year. Meanwhile, in an effort to capture relatively high prices this year, farmers planted a record 84.8 million acres of beans, far above the USDA’s last estimate of 81.5 million acres.
As a result of the large supply and abundant rains helping the growing crop, soybean prices collapsed after the report, losing more than $1 per bushel during the week, with November beans trading Thursday for $11.34 per bushel before the start of the Independence Day holiday.
Alongside soybeans, corn and wheat lost value as well, with both markets dropping near six-month lows, with corn crumbling to $4.15 and wheat worth only $5.68 per bushel.
For some farmers who have already invested significant time and money into this year’s crops, these moves were crippling, but those who utilized hedging techniques like selling futures, making forward cash sales, or purchasing protective options were largely sheltered from the price drop. Meanwhile, end users of the grains, like livestock feeders, ethanol producers, or food manufacturers, all benefit from cheaper input costs.
Relief at the pump soon?
As many Americans fuel up for the holiday weekend, high gas prices may be on their minds. Fortunately, there has been a recent drop in gasoline futures that could work its way to the price at the pump. Over the past two weeks, futures have fallen by more than 10 cents per gallon, approaching the level where prices stood before the surge of violence in Iraq.
Global tensions remain high, but this week brought slightly less threat to the global oil supply. In Iraq, fighting between factions continues, but with little impact on oil exports. In Ukraine, the government claims to be making progress against rebels in its eastern provinces, and there appears to be little sign of new Russian involvement in the conflict. Finally, Libya announced a deal this week with rebels in that country that could allow for increased oil exports, bringing hope that Libya could reclaim its role as a global oil exporter after its 2011 revolution.
As of Thursday afternoon, crude oil was trading for $104 per barrel, while gasoline futures were worth $3.02 per gallon, a price that represents the wholesale fuel, without taxes or other expenses included.
Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.