More Beans in 2008, but We're Going to Use Um Up

May-13-08

Even if producers shift large acreage back to soybean for 2008, the USDA still believes we can use whatever we produce. They start with the March Prospective Plantings report where producers indicated they would seed 18 percent more acres to soybeans. That is 74.8 million acres, an increase of 11.2 million acres. With trend yields of 42.1 bushels, total production grows to 3.1 billion bushels a whopping 20 percent increase compared to last year.

Surely the U.S. will be swimming in soybeans? Not according to USDA as they anticipate a strong demand base. Exports are expected to drop only 40 million bushels as acreage expands in South America. The domestic crush is expected to actually rise to record high levels, and the bottom line is that soybean ending stocks would only rise by 40 million bushels to 185 million. The 140 million from the 2007/08 marketing year represents only an 18 day supply which would expand to only 22 days supply by August 2009. If these numbers do develop, soybean supplies will remain very tight in 2008/09, prices will remain high (estimated by USDA to average in a range from $10.50 to $12.00 per bushel, or $11.25 at the mid-point) and small disruptions that reduce production or increase demand could cause major upside price movements.

How many acres will actually get planted? With financial incentives lying with corn this spring, and a late wheat harvest that may result in somewhat less double crop acres, I expect soybean acres to actually be 2 million less. This would mean a reduction in the crop size of about 70 million bushels. That would tighten the ending stocks, force greater reductions in usage, and result in average prices that are nearly $1.00 higher, with a mid-point near $12.00.

On the old-crop, soybean exports continue to be surprisingly large as Argentine farmers hold back on moving soybeans to market as they protest their government’s increase in export taxes. While they are withholding soybeans now, this most likely means when their conflicts are resolved, Argentina will have more beans to sell. Still at the current rate of export sales, U.S. soybean exports would rise another 40 million bushels to 1.130 billion. That level may not be achievable due to limited U.S. inventories. Or to say that another way, there just won’t be that many old beans to sell to the world.

July soybean futures rallied after the updates from USDA on May 9th. This is being driven by increased old-crop exports and may enable July futures to reach $14.15 per bushel. The next upside level would be $14.70.

Pricing most of remaining old-crop stocks with July futures above $14 should be considered. If export demand remains strong basis will continue to improve and available supplies of soybeans could get very tight. This also favors holding at least a few bushels for a tight cash market or a possible weather disruption this summer. However, the normal tendency is for soybean prices to drop into the growing season, so holding small percentages would be advised.

The anticipated shortness of available soybeans at the end of this summer may encourage planting of some early group beans that can be harvested in the first-half of September. Early September harvest premiums might be in the range of 50 cents to 75 cents per bushel.

USDA expects new crop bean prices to average in a range from $10.50 to $12.00. I believe they will be 50 cents to $1.00 higher given current information. November futures may be able to achieve $13.50 here at planting time and provide a great opportunity to forward contract cash beans at harvest in the mid-$12 area. We generally recommend having 30 to 40 percent priced by the end of May.

As with corn there are many unknowns that could have dramatic impacts on prices. It continues to be a high risk year with the possibility of wide swings in prices and outcomes. For this reason, a more diversified pricing strategy may be advisable in which pricing is spread across time.

Use of This Information: This information is based upon current evaluations by USDA and Purdue analysts. While it utilizes the latest known information, future outcomes can be much different due to shortcomings in analytic methods, to inaccurate anticipation of future events, and to unforeseeable new events. Ultimate outcomes are often different than provided in the outlook. Thus, this information should be used in conjunction with other outlook sources and decision makers should always evaluate how a range of potential outcomes would impact their firm or organization.
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Chris Hurt
May-13-08
Purdue University