South American soybean growers are projected to increase total production by 12-14% this year as world soybean farmers produce another record crop.
As the global supply/demand table below shows, total soybean production in the world is projected to reach 6.9 billion bushels. Is this bearish for prices? Not when global usage is at over 7 billion bushels. Global demand for soybeans continues to grow by 2-3% each year. And, with improving global economies, the 2-3% increase that's forecast for 2003 may prove to be conservative.
Any hint of production problems in Brazil could send prices sharply higher.
USDA supply/demand shows ending U.S. soybean stocks at just 185 million bushels. This drops the ending stocks ratio to just 15.5%. By the time you read this, chances are the January USDA report will reduce ending stocks again. Export sales remain much stronger than earlier forecast. Our current projection is that U.S. soybean exports will again top 1 billion bushels. That would be 110 million bushels higher than the November 2002 USDA forecast.
Five key factors to watch in January:
Weather in South America. If the El Niño pattern continues to keep the northern areas of Brazil too dry and the southern areas too wet, it will be difficult for the country to produce the huge crop now factored in. At NorthStar we are spending more time watching the weather radar on Brazil than on the U.S.
The CRB (Commodity Research Bureau) index of commodity prices made a major low in January of 2002. For the year, the CRB posted impressive gains as the rally continued into November-December of 2002. Closing above the 2002 high in January of 2003 would be a positive signal for all commodity prices, including soybean prices. If the CRB closes below the December 2002 low in January of 2003, it would suggest a correction in commodity prices into the first quarter of 2003.
January soybeans have had tough resistance at $5.80, with support at $5.50. A weekly close above $5.80 will suggest a rally up to $5.90-$6.25. A close below $5.50 will suggest a move to $5.30. A bull market has to be fed each day, so look for bullish news out of Brazil.
Watch the alignment of the futures market. Right now the market is inverted — which means that the January soybean futures contract is at a premium to the March contract and the March contract is higher than May's. This inverted market is a bullish signal and shows strong nearby demand. If the futures market drops and a carrying charge develops, that would be a negative price signal for soybean prices.
Watch basis for a signal on price direction. Basis improved in late November-early December to some of the most attractive levels in the last 10 years. If futures rally and the basis begins to widen out, that is a sell signal. A flat futures market and narrow basis are a good long-term price signal. Soybean basis levels have been staying strong as exporters and processors compete for limited farmer sales.
How to market the balance of your 2002 soybean crop? As a firm, NorthStar has recommended that at least 50% of the cash soybeans should be priced.
For producers who use futures and/or options, all of the cash soybeans have been sold and then replaced with May soybean call spreads. For producers who have soybeans still in the bin, we suggest checking their cash bids against the differed bids. Odds are good that they will see the advantage of selling cash now and then replacing with call options. For producers just selling cash soybeans, have offers in to get 60-75% sold if and when the March or May futures hit $6.25.
For new-crop 2003 soybeans, bids are below loan, and odds are good that better prices (above loan) will be available by planting.
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].