Grain companies will have to pay up to get deep-pocketed U.S. farmers to part with soybeans, as about half of the crop remains unsold at a time when soymeal demand rises seasonally and the export program could be extended by planting delays in Brazil.
Soybean basis bids – the amount above or below Chicago Board of Trade benchmark futures prices that grain merchants pay to farmers – are poised to climb at least until year-end after hitting a low for 2010 during harvest last month.
Last week, at a soybean processor in Decatur, Illinois, home of Archer Daniels Midland, basis bids rose 25 cents per bushel since Oct. 7 while spot CBOT soybean futures increased about 20 per cent.
“All indications are that it (the basis) will continue to recover strongly for the next few months,” said Kevin McNew, president of Montana-based Cash Grain Bids Inc., which monitors the basis at thousands of locations across the United States.
“Usually with beans, more than corn, when farmers are through with harvest and the bin doors shut, that’s it,” said Diana Klemme, vice-president at Grain Service Corp. in Atlanta.
“It doesn’t mean farmers won’t sell, but you have to work to pry them out of their hands through sharply higher prices that they haven’t seen before,” Klemme added.
BULLISH FARMERS HOLD TIGHT
The U.S. Agriculture Department said the average price farmers got for soybeans in October was 14 per cent higher than the same month last year. At the same time, farmers were harvesting a record-large crop at a record-fast pace.
U.S. farmers have sold between 55 and 60 per cent of their soybeans, slightly more than normal for this time of year because of recent high prices, said Charlie Sernatinger, analyst at ABN AMRO in Chicago.
Due to the larger marketings, the growers may take a more bullish stance when they sell the rest of their soybeans.
“The question is, will futures do the work or does cash?” Sernatinger said. “If futures keep going up, farmers will give you more and keep cash (the basis) under wraps.”
La Nińa weather conditions have delayed soybean plantings in the top-producing soy state in Brazil, the No. 2 exporter behind the United States, and the late start could extend the U.S. export program.
Robust demand from China, which buys about 60 per cent of the world’s soybeans, keeps supporting soybean prices, which hit a 17-month high on Nov. 5.
Domestic demand for soymeal is also on the rise, and soymeal futures hit a 14-month high this week.
Meanwhile, farmers have plenty of cash on hand and may delay sales until 2011, a new tax year, said Glenn Hollander, of the cash-connected firm Hollander &Feuerhaken, which has been on the CBOT trading floor for 66 years.
“I don’t think you are going to see a lot of beans moving unless the price goes a little bit higher,” Hollander said.