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Articles from 1997 In December

Corn+Soybean Digest

Law Changes Put Premium On Year-End Tax Planning

Count on spending some extra time with your income tax advisor yet this month. Because of law changes, year-end income tax planning may be more valuable than usual.

The planning strategy hasn't changed much. It still makes sense to have enough income to use all your "free" deductions. Those include a personal exemption of $2,650 for you, your spouse and each dependent. There's also the standard deduction of $6,900 on a joint return or $4,150 for a single person.

Also, add in 40% of your health insurance premium and half of your self-employment tax.

All those could add up to more than $20,000. You want to be sure to have net income of at least that much. Otherwise, those deductions are lost forever.

Another general rule is to push toward the top of the 15% tax bracket if you're expecting higher income in the future. The first $41,200 of taxable income is taxed at only 15% on a joint return this year. For a single taxpayer, the 15% rate tops out at $24,650 of taxable income.

In other words, if you're holding on to grain, you may be better off to keep selling before year end until your taxable income hits the top of the 15% tax bracket.

Here are some tax changes that could affect you:

* Income averaging will make a comeback for three years -- 1998-2000. If you don't hit the top of the 15% tax bracket this year but go over it during the next three, you will have a chance to push some money back to your 1997 (and '95 and '96) tax returns if those were lower-taxable-income years. That will keep the money taxed at 15% rather than at 28% or more.

That takes some of the pressure off to push '97 taxable income to the top of the 15% bracket. But most tax advisors will still suggest that you level income with good tax planning rather than depend on income averaging.

* If you're a cash-basis taxpayer, go ahead and use deferred or installment payment arrangements for sale of commodities you produce. Lawmakers told IRS to back off on trying to call those alternative minimum tax (AMT) items. In fact, that law is retroactive to 1987.

* Capital gains tax rates are now 20% for taxpayers in the 28% tax bracket and 10% if you are in the 15% tax bracket. This is retroactive to sales on May 7, 1997, or after.

Typical assets that may qualify include land, buildings and other real estate, machinery, livestock, and investments such as stocks and mutual funds.

The lawmakers added confusion to this change, too.

For sales of assets from May 7 through July 28, 1997, the new tax rates apply if the asset was owned for more than 12 months. However, for sales of some assets on or after July 29, you must have owned the asset for more than 18 months for the new rates to apply.

Therefore, if you sold certain capital assets after July 29 that you hadn't owned for more than 18 months, you will not get the lower tax rate on that gain.

Before year end, have your tax advisor estimate the amount of your gain for the year and at what rate it will be taxed. He will need to know the date you bought, the date you sold, the purchase price, depreciation taken and the selling price.

If you are thinking about selling any capital assets between now and year end, check with your tax advisor first. Or, at least be sure you have owned it long enough to qualify for the new, lower rate.

Two other changes could affect your year-end tax planning:

* The self-employed health insurance deduction is 40% of your cost this year, up from 30%. The new tax law will continue to increase it to 100% by 2007.

* The expensing deduction for this year is $18,000 of machinery and equipment purchases, up from $17,500.

Corn+Soybean Digest

Corn Groups To Consolidate

Ryland Utlaut likes to compare the uniting of two corn organizations to buying a new combine.

"I can drive a 10-year-old combine that does the job," says the new National Corn Growers Association (NCGA) president. "But manufacturers come with new models. A lot of times we're skeptical when a new one comes out.

"But generally it works better than in the past, and that's the way I'm looking at this new organization," Utlaut says.

NCGA is joining forces with the National Corn Development Foundation (NCDF), the organization that collects checkoff funds from state corn boards for national corn research and promotion. It uses the same staff as NCGA and is run by many of the same board members, says Utlaut, who farms near Grand Pass, MO.

"We were both trying to achieve the same thing, and we feel we can achieve more with one mind instead of two," agrees Gene Fynboh, NCDF president and Brandon, MN, farmer.

The new organization will keep the NCGA name. It is to become legitimate this month, after both boards vote. Fynboh is chairing the transition team.

One of the biggest challenges the new NCGA will face is self-imposed.

Current annual market value of U.S. corn is $27 billion. NCGA wants a figure of $40 billion at the farm gate by 2002.

"We need to start merchandising our product," Fynboh says. "We've been kind of waiting for someone else to do it."

The $40-billion goal looks aggressive, but it's only an 8% growth rate per year, says Fynboh. "But it is something that's going to give us a challenge."

They hope to meet that challenge with increased corn acreage and continued growth of the U.S. market. New crop uses and increased exports will also be part of the strategy.

NCGA will also be structured into three efficient bodies:

* The corn board will manage day-to-day work of NCGA.

* The corn congress will set policy and overall direction.

* Corn action teams will define and implement programs.

Action teams and task forces will allow more people to work within the organization.

"That would enable us to get the services of, say, a Minnesota farmer interested in serving on an ethanol task force even though he's not on a board," Utlaut says. "We'll get more input from more people."

Other advantages: time and money savings and less duplication of efforts.

Another change: The new NCGA will no longer be funded through fixed baseline funding.

It will be supported by member dues and voluntary state checkoff board contributions according to a three-year rolling-average budget of revenues and expenses dedicated to achieving specific goals of the organization.

Corn+Soybean Digest

Corn And Bean Values Soar

All of the above statements describe the soybean market in different weeks of October 1997. None are unusual; what is unusual is that they are occurring at the same time.

As the tables above illustrate, a large U.S. crop usually leads to low prices. The opposite is often true, too -- with a small crop, there are fewer bushels to sell, but prices are higher. Many farmers now have the best of both worlds -- good yields and higher prices. It's due to three key factors:

1) Global feed demand for corn, soybeans and soybean meal continues to grow. The world economy continues to expand and global meat production continues to increase.

2) The smaller crop in South America last year is sending the whole world (including Brazil and Argentina) into the U.S. soybean market until supplies are available from South America in March.

3) U.S. farmers did a great job of holding off on sales when prices dropped into harvest lows. Even though exceptionally good weather allowed for rapid harvest this fall, farmers priced very few beans.

The U.S. corn crop value (see corn table) shows a crop worth $18-20 billion from 1990-92.

Slow exports, large supplies of global feed wheat and a small corn crop dropped the total crop value to just $16 billion in 1993. From that major low in value, corn prices and profits have soared. Our current projection is that this year's crop will be worth over $27 billion.

The soybean table shows how dramatically U.S. bean crop revenues have increased in recent years.

For four years, from 1990 to 1993, the U.S. soybean crop was worth $11.5-12 billion. Since the crop and income disaster in 1993, soybean crop size and crop revenue have soared higher. This year's crop value is currently projected to hit close to $19 billion. If soybean futures rally another 50¢ per bushel, it could increase to over $20 billion.

How long can this last? The value of the U.S. corn and soybean crop is in a definite uptrend. Unless a global recession drops worldwide corn and soybean demand, look for crop revenue to continue to increase.

Higher prices are required to keep up with increasing costs that have raised production costs by at least 18% since 1994. Most producers with vivid memories of the 1980s slump are using increased profits to cut debt and increase efficiency.

Corn+Soybean Digest

Soybean Cycles Signal Higher Prices

Soybean prices have increased in the last two years, but hold onto your hat! Prices and price volatility are likely to increase substantially during the next two years.

This forecast is based on some reliable long-term price cycles for soybeans that show major price-cycle lows coming in periodically. Prices appear to have put in a major low and are now poised to move higher, possibly sharply higher.

This prediction is based on two dominant price cycles that bottom every three and five years. I feel that we are now in a period similar to 1980 or 1986.

In 1986, both of the price cycles turned up together with the real price explosion occurring in 1988. It took a while, but soybean prices rallied $6.32 a bushel, from a September 1986 low at $4.67 to a June 1988 high at $10.99.

The previous time that the two cycles worked together was in 1980, when soybeans rallied from $5.75 to $9.56 in just over three months. Now, with a higher base to work from, a rally equal to the one in 1980 would take prices up to $10.01, and a rally like 1986-1988 would project a high of $12.52 in 1998 or 1999.

As someone who has studied time cycles, I'm very aware that these studies are not an exact science. But the studies mentioned suggest an increased probability of higher prices over the next six to 24 months.

Understanding time cycles is difficult because so many short- and long-term cycles are intertwined. The long-term, dominant price cycle for commodities is the 54-year Kondratieff-Wave, with lows every 50-55 years.

For corn, soybean and wheat prices, the major lows came in 1932 and 1986. Since the major low in 1986, U.S. corn and soybean prices have consistently held higher lows even though the U.S. has harvested record crops in recent years.

For the first time since 1986, the three- and five-year price cycles are in synch, projecting higher prices.

The long-term commodity-price cycle and dominant soybean-price cycles both suggest that the recent pattern of price congestion is over and that a sustained rally is ready to begin.

To me, the question is not if prices will move sharply higher, but when!

A review of the longer-term five-year cycles shows major lows coming in 1970, 1975, 1980, 1986, 1991 and, most recently, in September of 1997.

Like any price cycle, this is not a perfect pattern. These cycles do show a low-to-low pattern averaging five years with a bottom coming in as early as 36 months or as late as 60 months.

>From the major lows, prices have rallied a minimum of six months and as long as 24 months. A lot depends on the interaction of shorter-term price cycles.

This, then, suggests a rally that will last at least until May of 1998, and possibly a rally that takes prices higher in a sustained rally into the spring and summer of 1999.

The three-year low-to-low pattern has had lows come in as early as 24 months and as late as 47 months. This pattern shows lows in 1970, 1973, 1975, 1977, 1980, 1982, 1986, 1989, 1992, 1994 and September of 1997.

An orderly market that moves gradually higher over time is much more likely to result in new all-time highs than a market that starts to gap, with daily trading ranges of 40¢ or more.

Remember the corn bull run from the fall of 1994 to July 1996? The first 18 months were a steady, orderly march higher, but during the last three months price volatility exploded and prices peaked.

For this bullish scenario to unfold, certain fundamental factors and technical signals are needed.

Since the first week of October this year, there has been amazing price performance. Futures showed impressive strength by holding above $6 into the harvest lows while a record 2.7-billion-bushel crop was being harvested.

Now, it is important that weekly exports and crush figures show usage at or above the pace needed to hit the USDA targets.

If either crush or exports slow, the fundamentals will not be in place to sustain a bull run. The initial technical signals are also very bullish.

CBOT monthly soybean charts show that, in October, nearby soybean futures closed above the September high. This has happened just five times since 1970, and prices moved higher every time. The average up move has been $3.97/bu. If you exclude the $9.54 up move in 1973, the average up move is still over $2. Now, with nearby soybean futures trading above $7, the next major resistance is at $8.15 (the September 1997 high), with more major resistance at $9.03 (the May 1997 high).

In order for soybeans to reach $10 or higher, these two major resistance levels need to be taken out during the January-May period. If prices do not hit those targets in 1998, there is still a good chance that a major rally will occur in 1999.

How can you benefit from these higher prices and still stick with a marketing plan?

I have talked with very few farmers who made huge profits in 1996, when corn rallied to over $5/bu. I did talk to a lot of producers who held too much corn for too long this year.

Farmers I work with who did make good profit in 1996 have some common characteristics.

First, and foremost, they made incremental scale-up sales. They didn't hold the whole corn crop for $5/bu, but had 20-30% left to sell in the high-profit zone. Some farmers who made the most money ignored the day-to-day gyrations and stuck with a time plan of selling 10-20% of their cash crop each month during the April-July period.

Another alternative is to use any pullback into early 1998 to buy some out-of-the-money July soybean calls.

Scale up your cash sales and hold onto the calls. If you do not make money using this strategy in 1998, be prepared to do it again in 1999. Odds are very good that, in one of the next two years, soybean prices will trade at new all-time highs.

Corn+Soybean Digest

Conservation Tillage Tops Conventional

For the first time, conservation tillage edged out conventional tillage in the acreage race.

No-till, mulch-till and ridge-till planting systems accounted for 37% of the 294.6 million acres of cropland planted in '97. Conventional tillage was used on 36% of those acres.

"We are committed to seeing conservation tillage on 50% of the annually planted acres in the U.S. by 2002," says John Hebblethwaite, Conservation Technology Information Center (CTIC) executive director.

CTIC defines conservation tillage as any system leaving 30% or more crop residue on the soil surface after planting. Conventional tillage leaves less than 15% residue, and in-between systems are called reduced tillage.

According to a CTIC survey, 109.8 million acres were planted using conservation tillage practices in 1997. That's a 6-million-acre increase from last year. Conventional tillage dropped by 4 million acres, to 107.6 million. Reduced tillage systems accounted for the remaining 77.3 million acres planted.

Growers in five states -- Iowa, Illinois, South Dakota, Kansas and Indiana -- contributed 5 million of conservation tillage's 6-million-acre increase. Iowa added a whopping 1.5 million acres, followed by Illinois, 1 million acres; South Dakota, 800,000; Kansas, 790,000; and Indiana, 680,000.

Indiana growers rebounded from last year's 650,000-acre decline. The decline was due to wet weather.

Compared to '96 figures, no-till plantings increased by 3.1 million acres, mulch-till by 2.5 million and ridge-till by almost 400,000.

Total no-till acres jumped from 42.9 million to 46 million. The leading states are: Illinois, 5.9 million acres; Iowa, 4.9 million; Indiana, 4.1 million; Ohio, 3.7 million; and Missouri, 3.2 million.

Total mulch-till acreage increased from 57.5 million to 60 million. The top five states are: Iowa, 8.2 million acres; North Dakota, 4.8 million; Kansas, just over 4.7 million; Texas, 4.7 million; and Nebraska, 4.6 million.

Ridge-till acreage increased from 3.4 million to 3.7 million. Nebraska has the most ridge-till acres, with 1.7 million, followed by Kansas, 495,000; Minnesota, 311,000; Louisiana, 263,000; and Iowa, 174,000.Overall, growers plant ed 4.5 million more acres of cropland in '97 than in '96, and 4.3 million of the increase was in soybean acres.

Iowa leads in the number of soybean acres in conservation tillage, with 7.3 million, followed by Illinois, 6.2 million; Indiana, 3.6 million; Missouri; 2.9 million; and Minnesota, 2.8 million.

The top five states for conservation tillage corn acres are: Nebraska, 6 million; Iowa, 5.5 million; Illinois, 3 million; South Dakota, 1.9 million; and Indiana, 1.8 million. Kansas was close behind with 1.7 million.

Corn+Soybean Digest

Bolster Your Soybean IQ

It's been called the miracle crop for years. And it's becoming more miraculous all the time.

It, of course, is the soybean. There are now more than 1,000 uses, and counting, for this remarkable crop.

Once used only as forage for livestock in the U.S., it's now our second most-valuable cash crop and our No. 1-value export crop. The 1996 U.S. soybean crop, produced on more than 380,000 farms in 29 states, was valued at more than $16 billion.

Yet most people have only a meager understanding of the crop's origin and history. So here's a capsulized summary to help improve your soybean IQ. The information is drawn from credible university, USDA, processing industry and American Soybean Association sources.

Historians suggest the soybean originated around 5,000 years ago in China. Chinese legend tells of traveling merchants who discovered a climbing, vine-like plant that produced small black seeds.

These seeds, filled with protein, little fat and no cholesterol, have been an essential part of Asian diets for centuries. And the Japanese, for example, have one of the lowest cancer rates in the world.

Europeans were introduced to the soybean when Engelbert Kaempfer, a German botanist, studied the plants in Japan, then imported them to Europe. The soybean was considered something of a curiosity in Europe, rather than a viable product, and didn't become a staple part of the European diet.

Soybeans arrived in America in the 19th century. According to early records, they were originally brought to the U.S. on a Yankee clipper ship. The ship, sailing from China to the U.S., used soybeans as ballast.

Upon arrival in the U.S., the soybeans were dumped to make room for cargo. History gets a little fuzzy about where they first took root, but a recent historical find claims the first soybeans were grown in Georgia.

During the Civil War, the soybean got off to an auspicious start with soldiers using the "coffee berries" as a substitute when real coffee was scarce.

By the late 1800s, USDA scientists started planting Asian soybean varieties at ag research stations throughout the U.S. Soybean pioneer William Morse went to China to collect 10,000 varieties for U.S. researchers to study. Morse also started what later became the American Soybean Association.

Farmers caught a glimpse of the soybean's true potential when George Washington Carver started studying it in 1904 at the Tuskeegee Institute in Alabama. He discovered that soybeans could be separated into two components: oil and meal. That was the start of the soybean crop's march toward becoming the miracle crop.

Soybean production had grown to around 9 million bushels by 1929, the year of the Wall Street crash. Soybean production reached the Midwest when A.E. Staley expanded his corn processing plant in Decatur, IL, to include soybeans.

Staley put out the word that he would take as many soybeans as farmers could produce. He helped Illinois become one of the top soybean-producing states.

Automobile pioneer Henry Ford became fascinated with the soybean and turned his attention to industrial uses. Ford's investigations revealed that soybean oil could be used for automotive paints and glycerine for shock absorbers. Some of his original paints are still used in the automotive industry today.

Ford also mixed soybean meal with resins to form gearshift knobs, distributor cases and automobile trim. His research became the basis for the development of soybean plastics.

World War II arrived with a bang, creating a need for edible products made from soybeans. German chemists, for example, discovered a soy oil product that could replace lard at 50% of the cost. This substitute became an anti-fatigue biscuit for German soldiers on the march.

In the 1950s, soybean processing technology changed from mechanical to chemical extraction methods, greatly reducing processing costs.

With new plants able to produce edible soy meal at a cheaper price, farmers started using soybean meal as a low-cost, high-protein livestock feed. This new use put the crop on the international market, and the soybean industry started promoting exports of soybeans worldwide.

By the 1970s, the U.S. soybean crop had grown to 78 million bushels on 5 million acres, and the U.S. was a net exporter of soybeans. Today, about every other row of soybeans is sold overseas, and they are the country's best trade-deficit reducer.

So if you're looking for a topic to wow the coffee shop crowd, twist your farm cap at a rakish angle and ask, "Hey, any of you guys know where soybeans came from and when?"

Corn+Soybean Digest

Iowa Corn Growers Fund 22 Projects

>From butanol fermentation and recovery to the development of disposable hospital gowns made from corn-based polylactic acid, Iowa corn growers are supporting a host of important research projects.

"We approve funding for projects that will improve the long-term profitability of growing corn," says Curt Jones, a Sioux Rapids farmer and chairman of the Iowa Corn Promotion Board (ICPB) research committee.

This year, ICPB approved funding of 22 research projects at a total cost of $891,419. While some of the projects are new, others are continuing from previous years, says Rodney Williamson, ICPB's director of policy and research.

Half of the projects are dedicated to the development of corn-based industrial chemicals that could replace petroleum-based products.

The committee decided a couple of years ago not to concentrate on new uses for corn in the food market.

"If we focus on the food market, we're predominately substituting one commodity for another. From an agricultural perspective, it may not be a net-sum gain," says Williamson.

Of all the industrial chemicals that could possibly be made from corn, the committee puts priority on four that it believes have the most potential for commercialization. They are:

* Butanol, which can be used to make paint, floor polishes, adhesives and varnishes.

* Polylactic acid, which has potential for use in biodegradable plastics. For example, a University of Tennessee researcher is working to develop fabrics made from polylactic acid. Hospital apparel is one possible use.

* Succinic acid, which can be used to make nylon, packaging materials and additives for oil.

* Polyols, used to make antifreeze, detergents, cosmetics and polyester clothing.

"These chemicals represent big markets, and they're markets we think we have a chance of competing in," says Williamson.

Adds Jones: "Our focus is to fund the development of products that will create at least 100 millions bushels of new demand for corn."

While most of the research projects are conducted at Iowa universities with direct funding from ICPB, three are funded through the National Corn Growers Association (NCGA).

Williamson says growers from the nation's largest corn-producing state support NCGA for two important reasons.

By funding research projects through NCGA, growers in several states can coordinate their efforts to achieve some of the same goals, he points out.

NCGA also has a licensing agreement with universities that enables the organization to commercialize new products.

"ICPB is prohibited by state law from accepting royalty income; however, NCGA can commercialize a product and receive royalties," says Williamson.

NCGA is currently negotiating a licensing agreement for a new corn-based succinic acid product. Money from Iowa corn growers was used to fund its development.

Corn+Soybean Digest

Growers Lean Lessons From Other Growers

When should a South Dakota soybean grower have an interest in how soybeans are grown in South Carolina?

Why would a grower in Ohio be concerned about soybean production in Missouri?

One answer to these questions can be explained in two words -- farm policy.

"When a soybean producer realizes that his or her profitability greatly depends upon the actions of many other people, that's when he or she most appreciates an opportunity to become involved," says Mark Berg, American Soybean Association (ASA) president.

Understanding the needs of others is critical to the unity of any organization, and that is the primary reason behind the Producer Information Exchange (PIE) Program sponsored by ASA and FMC Corp.

The program takes groups of soybean growers from different areas of the country and transports them to host states in other areas.

This year, participants from the southwestern Soybean Belt traveled to Ohio, and Southeastern growers went to South Dakota. Also, growers from northern parts of the growing area visited other farmers in Missouri and South Carolina.

In Ohio, a state with 11 million people, farmers are facing problems with urban sprawl -- problems that PIE visitors from Missouri, Kansas and Oklahoma expect to see in the near future.

Kansan Kevin Compton says farmers in his state need to be aware of the challenges presented by increasing urbanization in rural areas and learn how to deal with them.

"I got several ideas on how some of the people here are handling urban sprawl," he says. "They've set up committees to look at zoning. We'll need to prepare for this."

Another program participant, Oklahoma grower Shane Replogole, says the trip made him think about how he handles soil drainage back home on his farm.

"I've never seen a field with tiles in it before," he says. "It's a whole new system to me. It's making me wonder if I'm doing something wrong."

Missouri's Terry Reimer was impressed with the way Ohio soybean growers are focusing on specialized products.

"I think they adapt more quickly to the niche markets," Reimer observes. "They have more variability here than we have in Missouri."

In addition to learning about Ohio's agriculture, Steve Alexander, also from Missouri, was interested in the practices of the Ohio Soybean Association.

"I'm interested to learn how the association does things," he says. "Hopefully, I can take some of that knowledge back to my state association."

Gordon Little hosted growers on his farm near Watertown, SD. The visitors, being from warmer climates, were surprised by some of the no-till challenges that Little faces due to the fact that the ground takes longer to warm below the thatch of residue.

Little described how various knife and planter-wheel settings were being tested to improve seed placement.

Mike Freeman from Martin, TN, had a difficult time imagining how Dick and John Minnaert of Madison, SD, could have such clean soybeans where they haven't applied chemicals for nearly 20 years.

"We walk the fields and pull 'em out by hand," says John Minnaert, who produces organically grown, food-quality beans on contract.

Ron Schmidt and Jim Biddle, growers from Nebraska and Illinois, respectively, were among the group who learned firsthand the difficulties South Carolina farmers have growing crops in what amounts to 6" of sand on top of clay.

Both Judy Klahn from Wisconsin, and South Dakota's Delbert Tschakert, remarked about the multitude of insect problems in the South.

"We in the Midwest don't have to deal with the amount of infestation South Carolina farmers face," says Klahn. "While we may apply pesticides once or twice a growing season, some of these farmers spray six to eight times a season."

At Clemson University, the group also got a firsthand look at how producer checkoff dollars are being used to fund soybean research to deal with issues such as these.

PIE participants like Gary Joachim from Minnesota and Pete Bardole from Iowa may have never seen how cotton or peanuts are grown.

"I didn't know that cotton blooms are pinkish red; I thought they were always white," remarks Joachim.

In southern Missouri, Chris Kummer from Kentucky was heard saying, "I can't believe how different it is here. I live only about a hundred miles away, and I never knew."

The delta soil typical in that area is alluvial. Water is only about 3' below the surface, so just about anything will grow if the season is long enough.

The knowledge gained by these farmers will help them better understand the diversity of soybean production and producers. That, in turn, will benefit them as industry leaders.

"There are a lot of differences between areas of the country," says Dave Hand, Ohio Soybean Association president.

"If we don't understand each area's unique problems, we won't know how to work out our differences in ASA. We have to work together as a unit," concludes Hand.

Corn+Soybean Digest

Big Crop No 'Easy Sell'

The bigger the crop, the more we've got to sell. Seems simple enough ... right? In the past, it was a fairly simple process to sell a big crop -- the threat of lower prices moved a lot of beans off the combine and into the demand pipelines. Once there, attractive bean prices for buyers kept crushers busy and export demand strong.

This year, there are a few glitches in that scenario:

There's no confusion over the fact that Brazil's planting progress starts to have an impact on the U.S. soybean market by November. This year, however, some uncertainty has been added to the mix. Lower-yielding, early maturing soybeans (produced to capture big early harvest price premiums) are normally planted by Nov. 1. In 1997, however, these beans went mostly unplanted. So growers will produce higher-yielding full-season varieties.

Two key factors result: 1) The average yield and total production in Brazil will likely be slightly higher than trade expectations. 2) The demand window for U.S. soybeans is wider. Normally, Brazil has new-crop soybeans available by early March. In 1998, however, the first significant supply of new-crop beans won't be available until late March.

At this time, the second factor is most critical. Demand for U.S. soybeans has never started stronger, and USDA has already built assumptions of record use into supply and demand scenarios.

Brazil also became an unreliable bean meal supplier, potentially sending traditional Brazilian customers to U.S. shores. The unavoidable delay in 1998-crop Brazilian beans ups the odds that demand for U.S. beans/products will remain strong.

The threat that El Nino's evil sister, La Nina, will bring drought to the U.S. Midwest in 1998 has already had a significant impact on U.S. bean prices. Just as the record '97 bean crop was being harvested, soybean prices shot higher. Demand was the primary reason, but the demand-based buying was led by end-users fearful that El Nino/La Nina influences would grind bean prices higher through the winter months. They viewed the harvest low as an excellent opportunity to establish some extended coverage -- just enough to have "something" on the books if '98 weather forecasts "turned dry." In '98, traders will be quick to react to threats of dry conditions and won't likely wait for the proof of dry conditions before establishing long positions.

All this concern over El Nino/La Nina at least contributed to the bean market's ability to post a higher-than-expected harvest low. But the higher-than-expected harvest low should also have the impact of reducing overall demand (because of the higher average price).

The greatest impact of the bean market's price resiliency is on our normally reliable Southeast Asian customers. The Asian economic crisis saw the value of currencies in countries like Indonesia, Malaysia, Taiwan, Thailand and the Philippines drop 20-30% against the U.S. dollar in about four months. As a result of the strong dollar, the cost of U.S. ag commodities for these countries skyrocketed. China and Japan were also impacted, but not to the extent of these other countries.

USDA moved quickly to shore up the buying power of these countries by extending credits under the Commodity Credit Corp.'s General Sales Manager (GSM) program. The Philippines, for example, hadn't used a GSM credit line for two years. But, as early as Nov. 1, it had already made small buys of U.S. grains/oilseeds using the program.

Most importantly, USDA has shown signs of getting more aggressive with GSM credit lines for these countries if conditions in Southeast Asia don't improve soon. Also, USDA has given assurances that none of the GSM-target countries are becoming uncreditworthy.

Bottom line: Selling a big crop is normally easy. This year, it isn't. Price is the primary reason. And late '97 price action at least suggests the bean market has moved to a higher pricing plateau.

Also, there's the very real threat of a significant bull market. Normally, when a record crop is harvested, the best strategy is to be at least 70% sold by harvest. This year, Pro Farmer believes holding half of '97 production into 1998 is a more prudent marketing maneuver.