Mother Nature, Crop Insurance, and Volatility Have US Dry Bean Growers Singing in the Rain
Volatility is back in the room everyone, so time to get off your keister and stop watching America’s Got Talent! The US dry bean market has slumbered for several months and alas the sleeping giant has awakened with a thunderous roar! Mother Nature has been busy at work churning up bad weather across the Upper Midwest’s vast bean growing regions causing irreparable damage for growers who would normally be finished if it had been a regular planting season. In just the past 18-24 days the US dry bean market prices have advanced nearly $.14/lb in certain varieties, and for most people it is difficult to ascertain what this advance means in terms of the US dry bean market. One way to think about it could be taking a comparison with the Dow Jones Industrial Average (DJIA) which is currently trading around 15,300 points as of today; now imagine having the DJIA make consecutive daily gains of 415 points for 18 trading days straight.
The dramatic dry bean market price movement has even caught the industry’s most seasoned veterans off guard and scratching their heads (perhaps other parts of their body too). Poor conditions provided by her majesty Mother Nature had forced most growers to wait getting into the ground, some have had to replant acres, a few have decided to take their insurance money bailing out on planting beans altogether this year, and the rest of the brave souls will be in the fields harvesting diamonds in the rough. Farmers that end up planting under this year’s challenging conditions are hoping to see prices bounce back to all time high’s should the market find itself with a low supply and high demand situation similar to 2 seasons ago.
Right now, the dry bean market is trading from a very defensive position with growers out N.D, MN, and MI very reluctant to sell any beans, last year’s crop, last weeks newspaper, or even lemonade until further planting progress is deciphered with the insight of the dead sea scrolls by the dry bean industry’s high priests. Although planting progress was relatively normal in the rest of the other bean growing regions in North America, the biggest bean producing states are able to move markets in either direction when these growers unite by leveraging their acres, crop insurance, weather patterns, and bean positions.
Some dealers in the industry have commented the recent price action as ” unprecedented” and another mentioned “In 22 years I have never seen this fast of a price increase”. It seems this move is the beginning of a larger one in the bean market and to just call this a spike in price action might not be valid because price spikes tend to return to mean revision rather quickly. Typically growers try shaking out market participants around this time of the year to get a premium value on the remaining beans before new crop, but fundamentally speaking this is no shakeout. It seems this upside move is legitimate as acres are projected to be down versus last year even before mother nature’s influence on planting conditions occurred. But now that planting season has been a disaster in the Mid-West most traders are coming to the realization the market is going to try to make it back to all time highs seen two crop season ago. South America is also exacerbating the situation because of a drought in Argentina which still really hasn’t been fully digested by the overall market. This means for US farmers there’s going to be one less major global bean exporter to compete with this season, and if we add that along with bad US planting conditions, possible early frost risks, continued demand, and much lower acres than first anticipated, then perhaps US growers may have enough steam to commandeer prices back to record levels.
Bottom Line: Market participants have to get used to these price levels for a while until growers get comfortable or not with the amount of acres they know will produce sell-able beans.