Soybeans can not maintain their lofty levels relative to the grains
We also want to make a quick mention of what has been happening in Chinese wheat futures. Over the past three months Chicago futures have dropped 20 cents, but Chinese futures have rallied $1.65/bushel. China’s wheat program is almost identical to its old corn program, and while they’ve been working to fix their corn problem they’ve left wheat alone. Chinese wheat prices are 2-3 times the world price, cheap corn has killed wheat feeding, and wheat is being moved into the country illegally. Chinese leaders view food grains much differently than feed grains, but some change in their price support system seems inevitable.
Speaking of China, they have moved recently to start enforcing weight limits on trucks. Overloaded trucks have done significant damage to their highways. This has made corn in the south much more expensive, which has led to a resumption of sorghum imports. That is contrary to their stated goals, but there is no indication they will drop their truck weight enforcement.
In the United States, the drop in corn futures has kept U.S. corn at a discount to the flat priced offers out of the Black Sea. The biggest threat to U.S. exports appears to be South America. Estimates of the Brazilian crop have climbed to 90 MMT versus a WASDE estimate of 83.5 MMT. In Argentina, corn planting is catching up and they are price competitive for March forward. With weather patterns generally favorable, price would appear to be the biggest threat to a record South American crop. If world and Brazilian prices drop another 20% the Brazilians would not plant the record safrinha acreage that is now planned.
We mentioned the USDA Baseline Projections and the expectation of higher soybean acres. We see the USDA making the same mistake they make every year at this time. They have projected that planted acres will drop five million, despite prices that will not encourage farmers to let land lie fallow. As in the past, they will only be correct if weather creates a major planting problem. They show soybean acres at 85.5 million versus our estimate of 90 million.