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Corn+Soybean Digest

Marketing Strategies

Climatologists report that the global weather phenomenon called La Nina has been intensifying. La Nina is characterized by a massive reduction of the water temperature from the eastern Pacific to Australia. It's the opposite of El Nino, which is the warming of water in the same area.

Last year's El Nino had little impact on global soybean and oilseed supplies. But the current outlook suggests an increased potential for weather problems and lower yields in South America (Argentina specifically) during this winter growing season and possibly in the U.S. this summer.

November and December weather reports from Brazil and Argentina suggest an average or slightly better-than-average crop for our competitors in South America. It's not the weather during November and December - which are the equivalent of May and June in the U.S. - that determines yield, though. It's the weather in January through March that determines the size of the South American soybean crop.

During the last 25 years, La Nina has had minimal impact on Brazilian yields. However, during years of La Nina, Argentine yields have usually dropped an average of 15%. Our current projection suggests an average yield of 39.33 bu/acre for the 2000 Argentine soybean crop. The table at right shows how this would drop the crop to just 648 million bushels and reduce the total harvest in South America to just over 1.853 billion bushels.

Crop prices have hurt profitability in South America, where producers do not participate in any loan deficiency payment (LDP) programs. With the current low prices, producers planted less corn and are projected to plant 2-3% more soybeans.

Acreage was not reduced, but farmers did cut back on fertilizer and lime purchases. That may not impact yields during the first year, if good growing conditions continue throughout the season. But if any weather stress develops, a lack of fertility could drop soybean yields especially hard.

What should you do? First, be ready to make cash sales on some of the soybeans you have LDP'd if and when nearby futures rally back to $5-5.25.

Second, be willing to use call options or futures to maintain ownership if you are offered attractive basis bids this winter. If futures stay in the current $4.50-5 trading range, processors will be scrambling for supplies. And if you check your cost of carry, you may find that holding paper pays better than holding the cash product.

Third, don't forget to watch 2000-crop bids. The last three years, the best bids came in early. It could happen this year if there's a South American weather scare. Put together a flexible marketing plan. ?

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