The soybean futures market has been in a long downtrend since the highs made in early 1997 at just over $9/bu. Large U.S. and South American supplies have kept a lid on prices and have kept most end users buying hand to mouth.
Table 1 is a review of the supply/demand balance for the U.S. soybean crop the last three years. Table 2 gives the NorthStar estimates for production, usage, ending stocks and what price level soybeans are likely to trade at this year. The long downtrend may be coming to an end.
Looking at table 1, the most amazing factor is that, even with a great yield average last year of 39.6 bu/acre, total usage is within 20 million bushels of production.
Demand continues to improve as both exports and domestic crush run well above last year's pace and earlier USDA forecasts. In the last four years, USDA has consistently underestimated soybean usage and overestimated ending stocks. I look for this year to make it five out of five.
Table 2 shows that a 1-million-acre drop in planted acreage combined with a 1-bu/acre drop in yield this year can create a fundamental situation that could rally soybean prices up 60-90¢/bu sometime this spring or summer.
Also consider that a 2-bu drop in the national average yield this year could set up much higher prices, as the nearby futures market would need to allocate supplies. With increased production potential out of South America, the talk of $7 soybeans is just not realistic. But it's dangerous to your financial health to get too bearish at this time of year.
The six main price discovery factors that we see for soybean prices this year are:
Acreage. It's the first and most important factor to watch. USDA will issue its prospective plantings acreage report on March 28. What loan rate Congress adopts this year will be one of the main swing factors in determining final soybean planted acreage in 2002.
Yield. With all of the fall tillage that's been done and the amazing soybean yield that developed last year in some of the most difficult growing conditions, odds are at least 2:1 that a trend line or better yield will develop.
Weather. Gurus are in agreement, calling for normal weather during the growing season.
China. It remains a big unknown. The demand for soybeans continues to soar. But recent GM safety licensing requirements appear to be an effort by the Chinese government to slow down China's demand for foreign soybeans while boosting its domestic price for soybeans.
U.S. dollar. Its continued strength could be a major bearish factor for U.S. soybean exports and prices.
Global economic growth. It's a key demand factor in the global soybean market. The fourth quarter of 2001 economic data shows the slowest economic growth since the financial crisis in 1997-1998. A rebound in global economic activity, stock prices, disposable incomes and meat demand will result in a demand-driven market. A weak global economy will limit the ability of the U.S. and global soybean markets to rally.
What should you do? Use rallies in the next four to eight weeks to get 80-100% of the 2001 cash soybean crop sold. Be cautious about selling new-crop soybeans unless the price you can lock in is close to your county loan level.
Selling ahead at a price that's $1 or more below your loan level could hurt you financially if soybean prices end up higher later this year.
Alan Kluis is executive vice president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, 1000 Piper Jaffray Plaza, 444 Cedar Ave., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].