Strong Incentive to Store Soybeans

The soybean market might be the most volatile out there, on a rollercoaster ride since spring. From July 13 to August 17, Chicago Nov. ‘07 futures declined in value $1.21 in just a little over five weeks.  “It must be noted that this market is one that has been perhaps, overly bullish at times and this very hard correction is reminiscent of the huge losses of mid-July,” wrote Alan May, in his August 17 soybean market review (see link http://econ.sdstate.edu/Extension/CommMkt.htm). “Even though there are over 11 million fewer acres of soybeans planted in the U.S., weaker demand and huge carryover supplies from the 2006 crop is weighing heavily on what has been a highly volatile market.”  Adequate bean supplies in the near-term have contributed to a poor soybean basis.

Yet the soybean trade knows what’s coming – an ending stocks number that’s expected to shrink in half by the 2008/09 marketing year (from a carryout of about 575 mil bu. this year to a projected 220 mil bu carryout next year).  U.S. soybean acreage and production is down this year, and USDA at this point is predicting only a trend increase in production for South America.

The soybean market will need to bid U.S. acreage back from corn, which should be reflected in prices that improve into next spring. Watch acreage and production expectations for South America – if acreage (planting there will take place November-December) and production climb significantly higher, that may pressure U.S. soybean prices next spring. Conversely, weather/production problems in South America would merely light a fire under an already volatile market situation. 

During years of high prices, soybean prices tend to peak in the March-May time period, says NDSU Extension economist George Flaskerud. This could continue to be the case in 2008, “unless we overdo the expected acreage and get an early peak, like in March,” he says. 

It will be interesting to watch the 2008 preplant buzz.  “Last year, you could almost feel the shift to corn,” says Flaskerud.  “We’ll have to see about the talk for 2008. With soybeans, this is the one crop where we could go $10-$11 easily if the U.S. or South America experience weather problems.”

Continue to scale up sales of the ’07 crop at a Nov ’07 soybean futures price of $8.50 or better, he suggests. Storing ’07 soybeans unpriced may be profitable when acreage competition and tighter stocks should provide even better pricing opportunities. Scale up sales of the ’08 crop next spring as well under this expectation. 

For both the ’07 and ’08 soybean crop, use a combination of crop insurance, contracts, and put options, Flaskerud advises.  Limit elevator contracts to CRC/RA-HO guaranteed yield. Consider a cash contract if it reflects a strong basis. Otherwise, evaluate a HTA contract in July futures with June delivery.

Soybean S & D Rapidly Tightening and Shows Need for Acres in 2008-09

	2006-07	2007-08	2008-09
Planted Acres	75.5	64.1	67.0
Harvested Acres	74.6	63.3	66.1
Yield/HA	42.7	41.5	43.5
Beginning Stocks	449	575	209
Production	3,188	2,626	2,875
Imports	4	4	5
TOTAL SUPPLY	3,641	3,204	3,089
Domestic Use	1,966	1,964	1,945
Exports	1,100	1,020	940
TOTAL USE	3,066	2,984	2,885
Ending Stocks	575	220	204
Stocks/Use	18.7%	7.4%	7.1%
U.S. Farm Price	6.40	7.75	8.50

Units: Million acres, bushels per acre, million bushels, s/u in percent, and price in dollars.
Source: USDA 08/07 for 2006-07 and 2007-08, Wisner (ISU) 8/10 estimates for 2008-09