Soybeans: Don’t Give Up Yet!

July-14-09

Old crop soybeans are going to remain very tight and new crop will be somewhat late to mature, at least in the Eastern Corn Belt where late planting was predominant. Exporters continue to sell old crop soybeans when it is not clear that inventories will be available to deliver on those commitments.

The realization that beans eventually did get planted and the non-threatening summer weather so far, caused the sharp break in prices. But is this bearish interpretation correct? While most of the beans did get planted, there were substantial acres that were planted very late. As an example, about 25 million acres were not planted by the end of May. My estimate is that planting delays this year have reduced the national yield potential by about 1 bushel per acre.

Crop conditions suggest the crop is just slightly better than average. The slightly better crop condition is not large enough to overcome the late planting impact on yields in my model which is providing a yield estimate of 41.8 bushel per acre compared to the 42.6 that USDA is currently using. My production estimate for the 2009 crop is about 40 million bushels under the USDA number of 3.26 billion bushels even though I add about .5 million more acres.

There is more weather information in this month’s corn outlook, but it suggest a dryer period in late July that may cause the crop condition to deteriorate some over the next few weeks.

Given continued pressure on very tight old crop supplies and a smaller crop estimate for this fall’s crop, I see somewhat higher prices than the government analyst. I would look for old crop soybeans to have at least one more rally, probably not a dramatic one, but perhaps with August futures moving back toward the $11 to $11.50 range. With strong basis, that could mean $11.50 to $12.00 cash bean price opportunities. One must keep in mind that while this is an optimistic forecast for those still holding old crop inventory, it is also a very risky strategy. If China were to cancel several shiploads, or divert them to new crop delivery times, then the old crop rally potential could be over.

New crop prices are currently depressed with November futures near $9.00. With a 40 under new-crop basis this means bids would be about $8.60 per bushel. With the current size of the crop I would put harvest cash prices closer to $9.00 to $9.25. If old crop has one last rally, then new crop will have some higher pricing opportunities at the same time, perhaps back above $9.00.

I continue to look for storage returns to be positive on soybeans into December or January 2010, but not much beyond based on anticipation for a return to a normal crop in South America this winter. This will tend to favor corn storage over soybean storage for those with limited storage space. The beginning of an improving world economy in late 2009 should also help provide a positive price tone in the immediate post-harvest time period.

World inventories of soybeans are going to remain tight over the coming year. In fact, USDA estimates are for world stocks as a percent of use to be tighter on August 31, 2010 (end of the upcoming marketing year) than in 2007/08 when U.S. farm prices averaged their highest at $10.10 per bushel. My current thought is that we will be slightly lower for the2009 crop at about $9.60 per bushel.

What about soybeans and ACRE for the 2009 crop. Given that Indiana state yields are expected to be about two percent below average this year (my expectation), this means that if the U.S. average farm price for the 2009 bean crop is below about $9.20, the state trigger would be met. Today (July 14), the USDA estimate is for farm prices to average $9.30 which would not meet the state trigger for an ACRE soybean payment. However, as of July 14th the futures market is forecasting a U.S. average farm price of about $8.70 per bushel which would likely trigger a soybean ACRE payment that is about $15 per acre higher than regular DCP payments. (The USDA model that allows you to use futures prices to estimate the U.S. average farm price for the 2009 crop is at http://www.ers.usda.gov/Data/PriceForecast/ ).

Of course to trigger an ACRE soybean payment both the state trigger and your farm’s trigger levels must be met. If prospects for your farm’s 2009 soybean yields are above average, this more highly favors staying out of ACRE for 2009, and if your farm’s yield prospects are average or below-then this more highly favors going in by the deadline August 14th 2009.

Also remember that once you sign up for ACRE on a farm-then that farm is in ACRE for the 2009, 2010, 2011, and 2012 crops. If the farm is not signed up for ACRE in 2009, the ACRE decision can be reevaluated for 2010. But once in, the farm remains in ACRE through the 2012 crop.

Chris Hurt
July-14-09
Purdue University