Soybean futures prices could very well head back into the teens soon and stay there for some time, but it all depends on China, says Chad Hart, Iowa State University (ISU) agricultural economist. Last week, nearby soybean futures markets had just popped into the teens after the USDA released its latest crop report, but then commodity markets dipped sharply on Friday before heading back up slightly early this week.

“Concerns over inflation in China last week ‘raised a red flag’ in the market, and soybean futures prices went limit down across the board, but even with that steep price drop on Friday, we’re still not that far away from beans being back in the teens,” points out Hart. “Last week’s news was the first time we’ve heard China might possibly be backing off on commodity purchases for almost two years. It’s the first negative commodity market news we’ve had from them in a long time.”

Besides last week, the last time soybean futures prices rose into the teens was during 2008, notes Hart. “From Feb. 14 to March 17, we had beans in the teens, but then prices dropped below $13/bu. in April, went back into the teens on May 9 and stayed there except for one day until Aug. 13 – about three and a half straight months.”

So, if China were to continue to buy soybeans in the next few days or weeks, bean prices will likely head back into the teens “and those prices could last awhile,” predicts Hart. “However, if Chinese commodity purchases cool off, then prices might drop again to a price somewhere around the $11-12/bu. range.”

The USDA’s most recent projection pegs the average soybean price for the 2011 crop to be more than $11/bu., but that was before soybean futures dropped on Friday, says Hart. “The market fell just below $13/bu. with the 70¢ drop that occurred on Friday, when nearby futures settled at $12.63.”

Aside from a possible dramatic drop in commodity purchases from China, the only other occurrence that might keep soybean prices out of the teens in the next few months would be news of a massive soybean crop coming out of South America, adds Hart. “Both possibilities could happen, but neither is very likely,” he says. “First, China has already booked two-thirds of the soybeans that the U.S. is expected to export to them this marketing year, and export purchases on the 2010 crop before September were a record. Second, there’s no indicator right now to show the soybean crop in South America to be anything other than about average in size compared to previous years.”

South America won’t be on the market with more beans for several months, points out Hart. “Until then, we know what stocks we have, and those soybeans will have to last until the Brazil and Argentina crops come in,” he says. “For now, global demand is still very robust.”

As a result, U.S. farmers can expect continued strong competition for commodity crops for the 2011 planting season, says Hart. “All the major U.S. crops have better prices today than they did six months ago,” he says. “If you pick a major crop to grow, you should do well, pricewise, with whatever crop you choose. Corn, cotton, soybeans and spring wheat are all up at least 25% compared to this time last year.”

For farmers in the Corn Belt, there will likely be no price incentive to switch out of a traditional, 50-50 corn-soybean rotation, he adds. “Right now, it’s a toss-up between corn and soybeans as to which one might be the more profitable crop to grow in 2011,” says Hart.

Still, anything could happen in today’s volatile commodity markets, he cautions. “China has been the hot market,” says Hart. “Right now, we’re in an uncertain market as we wait to see what China actually does. If their economy slows down, all the commodity prices will drop.”

The heavy market influence by hedge and index funds can also cause unexpected volatility, he adds. Last week, the hedge and index funds reacted quickly to negative market news, says Hart.

“They were in the commodity markets in a big way last week before these inflation fears, and they’re still in the market in a big way,” he says. “They were the ones leading the stampede out of the commodity market door. Whether they do so again depends on China.”

In mid-2008, the soybean market was in a similar scenario to what it is now, Hart points out. “As soon as we hit the top of the market, hedge and index fund sell-offs brought down all the commodity markets,” he says. “So, those funds add to the volatility that we currently see in the market, but right now, the biggest wild card in the market is still China.”