When Will Soybeans Prices “Catch-Up” to Corn?

March-10-07

The USDA made only minor changes to the supply and usage estimates for soybeans in their March update. Their estimate of the average price received by producers for the 2006 crop was raised by 10 cents a bushel, now in a range of $6.10 to $6.50, or $6.30 at the mid-point. There were no changes in any other numbers.

Huge old crop supplies and much lower production for the 2007 crop remains the theme. That is not likely to change until the planted acres become more clear and spring and summer weather prospects unfold.

Corn acreage is going to rise sharply, and this provides a bullish opportunity for soybeans in the March 30th Prospective Plantings report. Producers have the message that returns to corn are much higher than soybeans for the 2007 crop.

The seasonal direction of soybean prices from mid-March to mid-May is to the upside, and that remains likely this year as well. Cash bean prices in central and northern Indiana could approach the high-$7.00 mark this spring, with added premiums around Ohio River markets in southern Indiana. Short-term forecast into later March do suggests dryer and warmer than normal temperatures which may cause markets to anticipate somewhat fewer bean acres.

Basis levels remain terribly depressed reflecting very large old crop inventories. Those basis levels are likely to remain low at least into the summer. If a normal crop does develop, by the end of the summer many bushels of beans will have to remain in storage into new-crop harvest. This means that new-crop prices will have to be higher than end-of-summer soybean prices. In addition, there are not likely to be any premiums for early delivery soybeans as their will be for corn.

Old-crop pricing should be advanced in the next 60 days during the traditional spring pricing window. This is a period to consider pricing 25% to 35% of anticipated new crop production.

Corn and soybean prices should come back into alignment in the 2007/08 marketing year, with soybeans 2.2 to 2.4 times the price of corn. If corn is to average $3.70 for the 2007 crop, then soybeans should be in the $8.14 to $8.88 range. This suggests that soybean prices still have some “catching up” to do relative to corn prices.

Chris Hurt
March-10-07
Purdue University