Sell corn and soybean rallies, says SocGen

US farmers should sell every rally in corn and soybean prices in the run up to next summer, Societe Generale said, noting threats to prices from South American supplies.
 "We reiterate our view that US corn and soybean farmers should use every rally as an opportunity to hedge the 2017-18 crops," SocGen said.
The comments followed this month's US Department of Agriculture Wasde monthly report, which showed US yields of corn and soybean inventories at decade-high levels.
Record production
SocGen warned of the price effects of the South American harvest to come. 
The favourable weather in Brazil is likely to boost corn and soybean production this season, SocGen said. 
SocGen believes the excess supply would not mean that Brazil would become a "storage house for soybeans," with farmers holding on to their crops waiting for higher prices, as happened in neighbouring Argentina. 
Don't bank on real rally
In particular, farmers who wait for depreciation in the Brazilian real to support their local-currency-denominated earnings could be waiting a long time. 
"Fundamentally, the Brazilian real is overvalued," SocGen said.
"However, attractive carry trade should continue to support the Brazilian real in the near to medium term."
Even in dollar terms, the premium of Brazilian soybean supplies to prices at US ports has fallen to $26 per tonne, compared to $42 in October 2016, "and are likely to fall further as supplies from the region" SocGen said. 
Switch to soybeans
Rising fertilizer prices, and the high premium of soybean prices compared to corn, will encourage a huge switch to the oilseeds next summer, SocGen said.
The ratio of soybean to corn prices for the 2017-18 crop currently stands at 2.62 to 1 in Chicago markets, a signal to plant soybeans. 
"Corn profitability should further deteriorate as seasonal increase in fertiliser prices during the first half of 2017 should make soybean even more profitable," SocGen said.
Soybeans, unlike corn, are nitrogen fixing, and need little or no additional nitrogen application.
"We believe that US farmers may make a huge shift of circa 4m-8m acres from corn to soybeans in 2017-18," the bank said.
But SocGen said the switch "is unlikely to lend major support to US corn prices due to already high inventories in the US and competition from a significant increase in production in the Latin American region". 

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