In the world’s biggest agricultural market, the director of grains research at the largest broker on the Chicago Board of Trade says soybeans will beat corn.
Dan Cekander, the pheasant-hunting fourth-generation Illinois farmer at Newedge USA LLC says soybeans, off to the best start to a year since 2005, will trade at the most expensive levels relative to corn since 2010. Global inventories are poised to slump 17 percent to the lowest in three years, while world corn harvests increase to a record and U.S. farmers prepare to plant the most acres since 1944.
Six months before U.S. farmers start planting, Cekander was already gauging what they would sow. The secret is in the seeds because many growers buy most of their supply by the start of January. That helped him predict on Feb. 3 that soybeans for May delivery would rally. The contract jumped as much as 13 percent in six weeks. He’s backing his bet that beans will beat corn by planting more in his own fields in Illinois.
“It’s always interesting to talk to these seed guys,” said Chicago-based Cekander, 57, who has tracked grain markets for more than three decades. “They’re talking to all these farmers and they’re getting an idea of what they’re thinking.”
At a time when the U.S. Department of Agriculture expects record grain crops, soybeans have climbed 12 percent this year after drought damaged harvests in South America, the biggest growing region, and China agreed to buy as much U.S. supply in one week last month than its own farmers produce in a year.
Soybeans have jumped 24 percent from a 14-month low in December to $13.495 a bushel on the CBOT as corn advanced 8.8 percent to $6.445. The price ratio of 2.1 may rise to 2.5 to 2.8 this year as importers led by China buy more U.S. supplies because of crop losses in Brazil and Argentina, Cekander said.
This year’s advance in soybeans compares with a 0.7 percent gain in the Standard & Poor’s GSGI Agriculture Index of eight commodities. The MSCI All-Country World Index of equities appreciated 11 percent, while Treasuries lost 1.7 percent, a Bank of America Corp. index shows.
A soy-to-corn ratio of 2.8 would be an “aggressive” forecast, said Abah Ofon, the Singapore-based analyst at Standard Chartered Plc who correctly predicted the rally in beans that began in December. Ofon expects soy to average $13.13 this year and corn $6.78, giving a ratio of 1.94.
Just as Cekander relies on a friend’s German shorthaired pointer to help him find ring-necked pheasants to shoot in Illinois in the fall, Northfield, Illinois-based Kraft Foods Inc. and other clients turn to him to track the grain markets.
His analysis “enables you to go to your senior management and recommend strategies to take extreme coverage in a situation where you think prices are going to be sustainably high,” said Jack Bienkowski, a senior director of global procurement at Kraft who rates Cekander among the top three to five corn analysts in the U.S. and has relied on his analysis since 1989.
Cekander is making his estimates in a market where prices move on everything from floods to recessions to strikes by truckers in Argentina, the biggest shipper of soy-based animal feed and cooking oil. Soybeans traded as high as $16.3675 and as low as $7.7625 in 2008 as corn swung from $7.9925 to $3.055. That means he doesn’t always get it right.
While he correctly predicted in 2008 that ethanol producers would increase their use of U.S. corn, he didn’t anticipate futures slumping 48 percent in six months after reaching a record that June. Concern over shortages was eclipsed by the start of the worst global recession since World War II, spurring investors to leave the market. Open interest, or contracts outstanding, dropped from about 1.32 million in June to 810,000 by the end of the year, bourse data show.
“We never dreamed that we would go as low as we did,” Cekander said.
Newedge, created four years ago, is a venture between Societe Generale SA and Credit Agricole CIB, and is the second-biggest broker on U.S. exchanges, according to Commodity Futures Trading Commission data as of Jan. 31.
Volumes traded through commodity exchanges far outweigh actual output. Global soybean production reached 264.3 million tons in 2011, valued at $128 billion at last year’s average price. CBOT traded contracts for about 24.4 million tons of soybeans daily last year, data compiled by Bloomberg show.
The brokerage, which also handles equities, fixed income and currencies, is second only to Goldman Sachs Group Inc. as a futures commission merchant, ranked by customer assets in segregated accounts, the CFTC data show.
Cekander traces his interest in agriculture to a German ancestor who invested in land in the 19th century with money made from building railroads. He grew up on a farm in Pesotum, a village of about 550 people near where he would earn a Masters degree in agricultural economics from the University of Illinois, Champaign-Urbana. For a summer job as a teenager, he assisted an agronomy professor studying corn diseases and yields.
He joined Consolidated Grain and Barge Co. in St. Louis in 1979. He would later work as a grains analyst in Chicago for Frazier-Parrott Commodities Inc., Staley Commodities Inc. and Rodman & Renshaw Inc. before joining Fimat USA LLC in 1995. Fimat merged with Calyon to form Newedge.
None of his three daughters is keen on following the family’s farming tradition, he said. One of them shares his passion for fly-fishing, which takes him in the summer to the Blackfoot River in Montana where “A River Runs Through It,” the 1992 movie directed by Robert Redford, was filmed.
U.S. farmers start sowing corn in March and soybeans about a month later, with the eight-biggest crops covering 254.4 million acres, an area the size of Egypt, the USDA estimates. The department is set to release a planting survey on March 30. Exports rose to a record $136.3 billion in 2011 on demand for grain and meat in Asia, Central America and parts of Africa.
Cekander plans to travel to Japan and China next month for talks with traders and processors to gauge the outlook for consumption. China uses about 22 percent of the world’s corn and will buy more than 60 percent of world soybean shipments this year, the USDA estimates.
“He’s very grounded in fundamentals,” said Russ Day, a trader at the U.S. unit of Glencore International Plc who has followed Cekander’s research for at least a decade. “Dan gives you an insight into producer mentality.”