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Corn+Soybean Digest

Rising Demand Fuels Price Optimism

Corn and soybean planters have started to roll in the southern Corn Belt and farmer optimism has returned, just like it does every spring. This year I can see a very real reason for that optimism. It's all due to a key word that you will read a lot about in the next year: demand.

In 1997 and into 1998 a downturn in the global economy caused many of our best customers to pull back on soybean purchases, and prices fell as demand was less than expected. Now most of these nations are back in the growth mode.

U.S. soybean exports are running at a pace that's far above last year's export pace and well above USDA projections.

Table 1 (see printed article) the USDA and NorthStar supply-demand estimates for this year. In the last three months USDA has dropped soybean ending stocks from 395 million bushels to 345 million bushels. Based on the current export pace, we look for ending stocks to drop to between 300 and 320 million bushels in future reports. This would take the stocks-to-use ratio down to just 12-13%. That ratio would suggest soybean futures rallying back to the $5.50-5.90 price level.

Table 2 (see printed article) the initial USDA supply-demand projections for the 2000-2001 marketing year and NorthStar's projections under three yield scenarios.

USDA is currently using a 40-bu/acre national average yield for soybeans. That seems a bit high. With the shift of more soybeans to the western Corn Belt and the current lack of subsoil moisture in the Upper Midwest, only time will tell.

With December CBOT corn futures trading at over $2.50 at the time of this writing, we believe planted soybean acreage will end at around 74 million this year. The different yield estimates show how a 2-3 bu/acre change in the soybean yield will have a dramatic impact on total production, ending stocks and soybean prices.

A 1-bu change in the national average yield will have more production and price impact than a 2 million-acre shift in planted acreage.

During the last two years end users waited until the last possible day to buy soybeans. This usually resulted in these buyers buying at lower prices than buyers who attempted to buy ahead.

This just-in-time buying pattern has most domestic and international corn, soybean and meal buyers waiting to negotiate prices until the last possible minute.

With improved demand this year and some of the driest soil conditions in the last 20 years, it's a fundamentally different year. Don't get caught in the trap of selling this year like you wish you had last year.

What should you do? Sell the balance of your cash soybeans between mid-April and the end of June. That's usually the time of the highest futures price and best cash basis bids.

With all of the production uncertainty, go slowly with new-crop sales. If you need to sell soybeans off the combine, make scale-up sales of new-crop beans during the next 60-90 days using a combination of hedges and puts. If you have adequate storage, plan on carrying some inventory ahead into the spring and summer of 2001 as improved demand and long-term price cycles both project higher prices for soybeans.

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