Black Beans

Bean Prices Go Back To The Future

The United States Department of Agriculture has published their annual dry edible bean market summary. The report is quite lengthy and we will not be commenting on it’s entirety, just the meat and potatoes part. Please click here to view a portion of the 2015 Dry Edible Bean Summary. Starting with the first chart we can see North Dakota and Minnesota dealer monthly average prices over the past five years. We have highlighted in pink the highest prices offered by dealers and highlighted in yellow the lowest prices.

So going back to the 2011-2012 dry edible bean season you can plainly see prices hitting all time highs…peaking out about $61-62 dollars /CWT, FOB – North Dakota / Minnesota. Since then, price action has trended downward towards the lows at about $25 / CWT. On the second chart we take a look at Northern Colorado dealers and the values extracted during the 2011-2012 season. Rocky mountain dealers were about $3-$5 higher than the peak values of their competitors in the Upper Midwest. However, price action has also trended lower from the lofty $60’s down towards current values to just above $30.

The last two pages I have attached to this post show monthly prices for each crop year (previous 5 years) on pinto beans, great northerns, black beans, pink beans, and garbanzo. Remember the pink highlighted numbers indicate the highs and the yellow highlighted prices indicate the lows.

Now go back to the first two charts showing pinto bean prices over the past five years. This is actually a beautiful chart to look at (depending on your perspective of course). At the moment, pinto bean growers are probably puking when they see this chart because of where pinto bean prices are currently trading at, but…had this chart been back in 2011-2012 and shown the previous five dry edible bean market years from 2006 through 2012.. it would be the most beautiful looking price chart any pinto bean grower could ever want to see! (No matter where prices trade at, perspective is always different)

The reason the chart is beautiful is not because prices are low now, but because it’s so obvious to see all time high’s versus all time low’s. The big ginormous gap in the middle between the low’s and high’s is where pinto bean growers can expect prices to get back to the future. The reason growers can expect pinto bean prices to go higher (not necessarily in the short term) but in the long term is because of a mathematical phenomenon known as “mean reversion” which happens in every market on earth…no matter what type of commodity is being discussed or traded.

What is the ‘Mean Reversion’

The mean reversion is the theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry. Read more: Mean Reversion Definition | Investopedia http://www.investopedia.com/terms/m/meanreversion.asp#ixzz40Xk7gaf0

Bottom line: That being said, it’s obvious to anyone who is not ignorant prices will revert back to their proper averages in given time. The only uncertainty is when and how fast prices will revert back.

For the entire United States Department of Agriculture’s Dry Edible Bean Summary please visit this link USDA 2015 Dry Edible Bean Summary.

Dry beans: Production of dry edible beans is forecast at 28.7 million cwt, up
17 percent from last year. Planted area is estimated at 1.67 million acres,
up 23 percent from 2013. Harvested area is forecast at 1.61 million acres,
23 percent above the previous year. The average United States yield is
forecast at 1,784 pounds per acre, a decrease of 83 pounds from a year ago.

In North Dakota, planting was virtually complete by June 22, well ahead of
last year but equal to the 5-year average. As of August 3, development
remained behind the normal pace. In Nebraska, planting was virtually complete
by June 22, near the normal pace. By early-August, the crop was rated mostly
good to excellent. Michigan’s planting began ahead of schedule and was
finished by the end of June. Conditions have been favorable for the crop and
by August 1 the crop was rated 75 percent good to excellent.

Fundamentally speaking, things look good due to favorable weather conditions and more acres in most parts. Prices should decline to lower levels on certain varieties of beans and pulses when new crop starts shipping out into the market. Growers and shippers of certain colored varieties like Great Northerns and Red Kidneys will have a larger supply this year in hopes seeing last year’s high values again. There will be a larger supply of pinto beans this year along with a variety of color options, and the higher number of CWT produced in North Dakota & other pinto bean growing regions should drive prices to lower levels growers won’t be satisfied with.