AUDIO: Jim McCormick, Allendale
Grain markets this week will continue to monitor the latest forecasts out of Argentina. However, a market strategist encourages growers not to get too “bulled up” about its effect on soybean futures.
Jim McCormick is senior adviser for Allendale. McCormick says grain markets continue to respond to weather in Argentina. However, he suggests growers should focus on the long-term outlook.
“The market now is transfixed on the dryness issue in Argentina, and there’s no doubt it’s a problem. They’re going to lose about 10 million metric tonnes of production from last year. That’s the headline, that’s what’s driving the market,”McCormick said. “What the market is ignoring (is) Brazil’s crop could be anywhere between two- to five-million metric tonnes bigger than last year. The net effect is the world supply isn’t going to change dramatically.”
McCormick also makes note of Argentina’s soybean ending stocks. He says Argentina will carryover enough ending stocks to cover this year’s projected production shortfall.
“The Argentina carry-in is 35 million metric tonnes, or a little over a billion bushels. Even if they cut their production by 10 million metric tonnes, their carryout would be 25 million metric tonnes. To put that in perspective, the U.S. projected carryout now is about 14 million metric tonnes. There’s plenty of beans in Argentina to make up for their production shortfall,” McCormick said.
McCormick says current soybean futures present growers a marketing opportunity. He suggests growers sell old and new crop now, so they can secure locked in profits.
“Our modeling program suggests we’re probably at a near time high for beans and we’re looking at a break in the mid-nines going into springtime,” McCormick said. “Historically, we tend to get a summer rally. We’re encouraging guys – if you’re profitable, take advantage of it, lock it in now.”
McCormick advises growers wanting to play a summer rally to utilize options.
“The fact of the matter is summer rallies traditionally happen, but they don’t have to happen,” McCormick said. “Look at what happened in corn last year. Statistically, we get about a dollar trading range. We only traded a 60-cent range last year. You don’t want to turn down profits today on hope of maybe making a little bit more down the line. I’d lock in production profits today then maybe use options to trade on summer weather down the line.”