Soaked soybeans spur rebound from lowest price in 5 years

It’s been raining way too much for Midwest soybean farmers, and the storms just keep coming.

Many of the biggest growing areas in the U.S., the world’s top producer, had their wettest June ever, government data show. With inventories already shrinking more than forecast, the prospect of crop damage has sparked a rebound in prices that last month were the lowest in five years.

“The plants are just not growing,” said Pat Solon, 51, who farms 1,500 acres near Streator, Illinois. The soil is saturated and some land is under water, so leaves are yellowing on crops that stand 15 inches (38 centimeters), 40 percent smaller than normal. Solon forecast yields by the October harvest will drop 20 percent from last year.

The outlook wasn’t so dim a month ago. A record harvest in 2014 left soybeans mired in a bear market for a year. Cheaper supply helped boost demand, eroding ample inventories, and then heavy June rains delayed planting. Hedge funds have boosted soybean holdings in a bet the glut is easing, and broker Linn & Associates said Chicago futures may surge 18 percent by November to $12 a bushel, the highest since the slump began last year.

Water-logged

“I don’t think I’ve seen a worse-looking crop in such a broad area,” said Michael Mock, the senior risk manager for Maumee, Ohio-based Andersons Inc., a grain merchandiser that also sells crop nutrients, insurance and transportation services. “The more uncertainty about production, the more upside risk for prices.”

As much as six times the normal amount of rain fell from Missouri to Ohio in the past 30 days, The Andersons estimates. Illinois, Indiana and Ohio had their wettest June ever, Missouri was well above average and top grower Iowa got more than normal, data from the National Oceanic and Atmospheric Administration show.

“Soybeans don’t like wet feet” because the plants end up with shallow roots and are more prone to disease, said Dennis Wentworth, who had a thin layer of water Thursday covering portions of his fields in Downs, Illinois, after a storm the night before. On land that in 2014 produced the most since his family began farming 150 years ago, Wentworth now expects yields to drop 15 percent from last year.

Cutting forecast

A smaller crop would compound concern that U.S. inventories are going to be 40 percent smaller than the government predicted 10 months ago. Demand improved after prices tumbled from $15 in May 2014 to a five-year low of $8.9575 on June 15. Futures closed Thursday at $10.1575 on the Chicago Board of Trade.

Domestic inventories on Sept. 1 probably will total 287 million bushels, down 13 percent from the U.S. Department of Agriculture estimate last month, according to a survey of 30 analysts by Bloomberg News. Quarterly reserves at the end of May were 625 million bushels, 8 percent less than expected, after demand jumped 19 percent, government data show.

The USDA, which will release its monthly update on stockpiles and supplies Friday at noon in Washington, probably also will cut its production forecast by 1.8 percent, which may not include some of the more recent crop damage or land that went unplanted, according to analysts surveyed.

Ample supply

The news isn’t all bad. Even with the reduced yields, supplies are still ample after two years of record output. World inventories before this year’s harvest will be an all-time high of 82.9 million metric tons, up 53 percent from 2012, the Bloomberg survey showed.

With such hefty supplies, and bigger crops coming from South America, Goldman Sachs Group Inc. said in a report Wednesday that prices will be at $8.75 in three months, six months and 12 months.

The bears may be underestimating the risk of wet weather. Speculators have been jumping in. During the week ended June 30, net-long positions in soybeans surged the most since the government began tracking the data in 2006.

Prospects for a crop rebound also have encouraged investors to snap up holdings of exchange-traded funds, which saw the first quarterly inflow of cash in a year, data compiled by Bloomberg show.

Slow planting

U.S. planting as of July 5 was the slowest since 1993, and heavy rains forced the government to announce a special planting survey of farmers in Missouri, Arkansas and Kansas.

From 1996 to 2014, farmers failed to plant about 759,000 acres annually on average, for one reason or another, according to a study of USDA data by the University of Illinois. This year, growers probably will file claims on at least 2 million acres they weren’t able to sow, plus an additional 1 million that was planted and destroyed by flooding, according to Linn Associates.

“We don’t have the capacity to produce the bushels we had a month ago,” Roy Huckabay, the executive vice president for Chicago-based Linn. “The market has no idea yet on the extent of the damage.”