October 6, 2003

CBOT Corn & Soybean Prices Reach Historic Levels


Grain analysts said the rift between the prices of US corn and soybean hit historic levels this week, as the two markets responded to completely different supply and demand factors.


The CBOT market has seemed unstoppable, climbing to its highest level since late 1997 on worries about a rapidly shrinking US 2003 soybean harvest at a time when last season's export boom appears to be reviving.

At the same time, corn has floundered and dipped to seven-week lows as the market pondered the renewed possibility of a record-large US corn crop now being harvested.


There seems little in the picture to change the trends in the short term, with the market looking to the US Agriculture Department's next supply/demand estimates on October 10.


Commodity brokerage FC Stone on Wednesday projected the US corn crop to rise to 10.130 billion bushels and soybean production to fall to 2.564 billion, raising corn but cutting soybeans from its September estimates.


USDA in September trimmed its projection for corn to 9.944 billion bushels and for soybeans to 2.643 billion bushels, citing drought in the western Corn Belt. Since then, harvest yields have brightened for corn but eroded for soybeans.


On Friday, Memphis-based analytical firm Sparks Companies pegged US soybean production at 2.619 billion bushels and corn production at 10.016 billion, CBOT traders said. Traders said the soy number may spark some soybean profit-taking.


The price ratio between CBOT November soybeans and December corn closed at over 3.16 to 1 on Thursday -- its highest level in more than 30 years, analysts said.


"On a ratio basis, the spread has never been this high ever," said analyst Mark Weidner at Cargill Investor Services.


Weidner said there have only been three times in 33 years that the soybean/corn ratio went over 3 to 1 -- 1988, 1987 and 1978 -- with current prices most similar to 1978, when soybeans traded to a high of $7.31 per bushel with corn at $2.35.


Soybeans have a slew of bullish fundamentals that have prompted the November soybean contract to break $7 this week.

Continued reports of poor harvest yields for soybeans in Iowa, Minnesota, northern Illinois and other key areas after a hot dry stretch in August have keyed the rally.But corn, planted earlier, missed much of the pressure that baked soybeans during the crop's key pod-setting and filling stages.


Meanwhile, top soy buyer China -- which gobbled up a third of US soybean exports last season -- has bought at an even heavier pace since the Sept. 1 start of the new season. As of Sept. 25, China had booked 2.304 million tons of US soy versus 1.734 million at the same point last season.


Analysts said it boils down to the United States needing to "ration" export sales. That means higher prices, they said.


"Our domestic oil demand from the crush is 1.520 billion (bushels of) beans. That means you've got to ration exports. The only way to ration it is to get the US basis so much above South America the buyer goes down there," said Roy Huckabay, an analyst with The Linn Group in Chicago.


Grain market watchers can read the fundamentals, but so can big speculators. A strong fundamental picture for soybeans, along with soymeal and soyoil, has enticed commodity funds to buy all three very heavily, analysts noted.


The net long position of funds is now running at about 150,000 contracts -- an all-time high -- in soybeans, soymeal and soyoil combined, according to analysts.


An analyst with Prudential Securities, Shawn McCambridge, gives his comment: "The sentiment that's in the market right now is very bullish on soybeans. So the public has been pulled into this market to a certain extent as a possible investment opportunity."