Smaller Soybean Acres-Higher Prices

June-29-07

The biggest shock in the June 29th USDA reports was the 3.1 million acre reduction in soybean acres from the March report. Producers said they planted only 64.1 million acres which is the lowest soybean acreage since 1995. The biggest reductions in acres were in the Eastern Corn Belt which dropped 1.1 million acres from March and in the Western Corn Belt which dropped 900 million acres since March.
In percentage terms, the Eastern Corn Belt dropped soybean acres by 16.4% from last year as they increased corn acres by 17.6%. The direction was the same in the Western Corn Belt, but of less magnitude. There, soybean acres were down 13.5% while corn acres were up 15%.

The magnitude of the downward revision in soybean acres caught everyone by surprise. Most had assumed more soybean acres were going to be planted because of the large movement to double crop and because of wheat acres that were thought to have been destroyed by the Easter weekend freeze and replanted to soybeans.
USDA reports that 8% of the soybean acres are double-dropped this year compared to 5% last year. This amounts to 5.1 million acres compared to about 3.8 million acres in double-crop last year. This higher level of double-crop would reduce the national yield potential in the range of .3 to .5 bushels per acre.

The weekly Crop Progress report on June 25 indicated that this year’s crop was above normal in terms of condition. This would imply yields of about 42 bushels per acre if the crop continued through the growing season in its current condition. This quality condition should improve in the report to be issued on July 2.
While I will use the crop conditions ratings as a yield predictor, it is still much too early for them to be a reliable indicator of yield. The reason is that it is weather conditions in late July and August that tend to most directly affect soybean yields. Thus, crop conditions in June and early July are not very accurate in that determination.

A 42 bushel per acre yield with the reduced soybean acres would provide a crop about 2.66 billion bushels which is 80 million bushels lower than the previous USDA estimate. Ending stocks for the 2007/08 marketing year would drop to about 250 million bushels, compared to USDA’s current estimate of 320 million bushels. USDA‘s June estimate was for 2007 crop bean prices to average $7.15 per bushel. That will likely be increased to $7.40 or $7.50 in the July 12th update.

Futures market prices jumped well ahead of these price estimates after the report. Old crop bids were around $8.00 per bushel with new crop bids for harvest delivery about $8.20 to $8.30. Old crop soybeans are abundant (huge stocks levels) and basis will be weak. Current bids provide a surprising high price opportunity to finish up sales. For the new-crop, bids are near $1.00 per bushel higher than my anticipated harvest level prices and thus provide strong incentives for adding to new crop sales as well.

For producers the ride has been breath taking. Price action in the past two weeks has resulted in a plunge in revenue prospects for corn of more than $100 per acre as December corn futures dropped $.73 per bushel. Thus, Corn-the golden crop in 2007-has lost much of its luster for now. Alternatively soybeans-the other crop in 2007-are now receiving a bit of the glow that had been reserved for corn.

And we all know critical days are ahead where weather can greatly alter yield prospects. Plus, once yields are better known, great uncertainties exist for the structure of demand for the 2007 crops. So, save a few breaths for what is still to come in this volatile environment.

Chris Hurt
June-29-07
Purdue University