Andrew Mickey over on Seeking Alpha has a good article about the poor soybean harvest in Argentina among other factors will lead to a spike in grain prices later in the summer:

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This summer has the potential to be a very big one for agriculture commodities. The price of everything – wheat, corn, barley, sunflower, etc. – are on the verge of going much, much higher.

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Just like every other commodity, agriculture commodity prices are driven by supply and demand. The catalysts for agriculture commodities in this summer rest on the supply side.
The first factor is grain stockpiles. They’re at record lows. Corn is the perfect example. Corn stockpiles in the U.S have currently fallen to a 33-day supply. That means if there was no corn production this year, the U.S. would be out of corn in a little over a month. This is the lowest on record since the old record of 34 days’ supply set in 2003.

It’s not just a problem in the U.S. though. The rest of the world is probably not going to make up for the shortfall. Allendale Inc, a commodities research firm, says:

“Equally alarming is the lack of help from major world suppliers such as China, Brazil, Argentina and South Africa. U.S. Department of Agriculture (USDA) projects the world end stocks [are at] 128 million tonnes, down 8.6% year on year. This would imply the world day’s supply of corn at 53 days, one day lower than the old record dating back to 1999.”

To make matters worse it appears the Chinese are sucking up all the available supply of grains.

The U.S. supply of ‘old-crop’ soybeans is projected to be the smallest ever this summer.

That is creating a run-up in CBOT soybean futures prices. The July CBOT soybean prices, at $11.85 per bushel, jumped 76 cents from Sunday night to Wednesday.

The price surge is also sparking world buyers to secure supplies ahead of any demand-rationing.

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The U.S. domestic soybean meal crush runs about 120 million bushels per month between August and November. By November, crush is ramped up to 150 million bushels. “So, we’re going to either run out or ration the crusher,” the unnamed floor trader says.

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The road to very tight supplies started with the Chinese government announcing it is procuring 7.0 million metric tons of soybeans for its state reserve.

On Wednesday, news reports indicated the Xinhua, the official Chinese news agency, says unnamed Chinese experts want the government to use some of its massive foreign currency reserves to build up a Chinese bean stockpile of 50 million metric tons.

Lespinasse says this is unimaginable and will not happen. “But it makes one wonder why Xinhua would even print such a story.”

China announced its stockpiling initiatives at a time when Argentina’s 2009 soybean production, hurt by drought, was much worse than people thought.

My comment: To add to the potential price increase is the fact that weather is delaying farmers in North America from getting their soybean and corn crop in the ground here, here, and here. I suspect we are beginning to see the effects of the low sunspot cycle. I have my holdings in various agricultural stocks and I also added DBA the Powershares DB Agriculture which invests in corn, wheat, soybeans, and sugar. I am of the opinion that the agricultural bull market that got short circuited in last July’s commodity collapse is now ready to resume.

John Polomny
The Real Deal