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Don’t look to past for soybean pricing opportunities

Don’t look to past for soybean pricing opportunities

Don’t let your rearview mirror be larger than your windshield. That might be the best advice possible going forward for soybean producers, especially considering prices during 2012, says Max Runge, Auburn University Extension economist.

“We’ve had record-high prices. Now, enjoy them and pay off some debt if possible, but don’t look behind you and try to price based on what was in the past. Record-high crop prices might not be such a good thing, because if growers can’t get a price close to that, then they’re disappointed,” he says.

Looking at the World Agricultural Supply and Demand estimates for September, soybean prices for the 2012/2013 year are estimated at $15 to $17 per bushel, says Runge.

“We’ve got a September yield estimate of about 35 bushels per acre and 75 million acres planted in the United States,” he says. “For the Southeast, we’ve had some precipitation this summer, but the Midwest didn’t fare so well. The warmest continuous 12-month period in U.S. history was August 2011 through July 2012. So not only did we have a drought in the Midwest, but we’ve had warmer temperatures that have affected several production factors.”

Soybeans, for the most part, have been an early crop this year like corn and other crops, says Runge. Crop condition started out well but then declined very quickly. “Some yields in the South are flat compared to last year, but the good news is that we had a good year in 2011, so 2012 will be a pretty good year too.”

The U.S. average yield estimate dropped slightly from August to September 2012, adds Runge.

“I talked with an industry analyst earlier, and he said 36 bushels was the magic number, and if we get below that number, there could be some issues out there. We’ve got estimates of what yields will be, but we don’t have nearly as good an idea as we do with corn. It’s easier to get an estimate on corn. Sometimes it’s more difficult to equate pod counting with final yields.”

In the spring, there was TALK of $4 corn and $10-per-bushel soybeans, Runge says. “We were threatened with $5 corn, but not $10 soybeans. After the drought took hold, we started hearing about $10-per-bushel corn and $20-per-bushel soybeans. I don’t think we’ll see that either.”

Turning to some current issues, Runge says there were below-freezing temperatures in Minnesota in September, but that probably wouldn’t have much of an effect because soybeans were planted early. In Minnesota, there was very little if any yield loss after Sept. 21, when frost occurred. Earlier in September, there would have been the potential for yield loss.

Asian soybean rust (ASR) has been a problem in the Southeast this year, he says. “As of Sept. 23, there were about 173 counties reporting rust, with probably 50 counties in Alabama. I don’t know that we have more rust than anyone else — I think we just have a better system in place for detecting it. But it is spreading, and we even have some outside the Southeast. It can affect soybean yields and should be treated.”

The kudzu bug, he says, started out of Athens, Ga., and is spreading east and north, mostly east, but has started a slow migration to the west. “It’s already in Tennessee, so we know it’ll be here eventually. In our test plots, we’re seeing unprotected yield loss anywhere from zero to 47 percent, with an average of 18 percent yield loss in soybeans.”

A relatively new problem, says Runge, is soybean iron chlorosis, primarily on high pH soils.

“We have a lot of those in west Alabama, and Mississippi has some. There also are some in east Texas. If we look at planting more soybeans in the future, we may start getting into marginal land that hasn’t been planted before, and this could become an issue.”

Currently, says Runge, there are inverted November to March prices. “Typically, whenever you look at futures prices, you’ve got November, and January is a little higher, and March is a little higher. That’s not the case now, with March being lower.

“This doesn’t happen often, only about once every 20 years. So what is the market saying here? It’s saying that it’s expecting a large crop of soybeans in March, from South America. Those should be coming on board, and they want the beans now. So the incentive is to sell now.”

For 2011/2012, U.S. ending stocks are at about 130 million bushels, and for 2012/2013, they’re at 115 million bushels, says Runge, with less being crushed and less being exported.

Turning to world stocks, specifically percentage changes from 2011/2012 to 2012, beginning stocks were down by almost 24 percent and U.S. stocks were down by almost 40 percent, he says. “Our production is down by about 14 percent. Beginning stocks, even in Argentina and Brazil, are lower. China will have lower ending stocks and will be importing more soybeans.”

Crop losses, he says, may make Brazil the top soybean-producing country in the world this year. From 1990 up until this year, the U.S. has led Brazil in soybean production. But with the Midwest drought, Brazil is expected to out-produce the United States.

Soybean acreage in South America is increasing, and production should be increasing, says Runge.

“Looking at long-term baseline projections, China will be importing the most soybeans. As far as exports and production, U.S. long-term projections are fairly flat, Brazil is increasing, and Argentina also will be increasing some. For the exports that are available, Brazil will be supplying a good portion of them.

By 2050, says Runge, 70 percent of the world’s population will be living in cities, and global food demand must double.

“But the interesting point is that the middle class is projected to grow from 1 billion today to 3 billion in 2050. That will be three times as many people who have wants and desires and the ability to pay for a lot of the things that we now enjoy. We eat well, wear nice clothes, we drive cars, and we live in air-conditioned palaces. That will be a huge demand on resources going forward.”

Questions remain about whether or not there will be cutbacks in the feeding industry due to increases in soybean and grain prices, says Runge.

“We’ve already heard talk of cutbacks to smaller dairy herds, smaller cow herds, extended time between flocks in poultry houses, and probably less pork. Most producers with animals now were contracted three to six months ago, so the $500-per-ton soybean meal hasn’t hit yet.

We have seen an easing of some of the prices out there. Soybean hulls came down by about $40 from their high.”

Another big question is what Midwestern producers will plant next year, says Runge. Southern Illinois University’s 2013 budgets estimate a return per acre from corn of about $467, soybeans $314, wheat $152, and double-cropped soybeans at $204.

“Looking at this, corn is king,” he says. “The other consideration is when you throw in wheat and follow with beans. You’re somewhere between soybeans and corn. The price of wheat is strong, and if we see a desire in the Midwest to rotate acres out of corn, we may see some wheat/soybean double-cropping there.

“Basically, with $6 corn, you need $16 soybeans to equal that return. If you look at the futures market, $16 beans are not out there, but $6 corn is. We may see a heavy leaning towards corn, and that will give us some pricing opportunities with soybeans.”

If you’re planting soybeans in 2013, deciding when to market may be difficult, says Runge.

“In 2010, November future prices started out at about the $10 mark, hit the lowest point in July, and then were the highest at harvest. In 2011, they started at about $13, ran up in September, then bottomed out at $11.50 at harvest. In 2012, basically we started out at $12, and we’ve been easing down.

“So, looking at this year and the past two years, when would be the best time to price your soybeans? It’s easy to look back and tell when to price them, but it’s more difficult looking forward. There was no one good time to price soybeans over the past three years.

With that in mind, we’re probably looking at $15 to $17 soybeans at harvest. But it’s more difficult looking farther out. I can’t get a good handle on how the inverted market matches with what we think our supplies will be. A key is how South America’s production comes out, remembering that they’re also having weather issues.”

Prospective plantings toward the end of March will be something to watch, says Runge. “The July supplies also will be a key, even more critical this year than in the past. The crushing plants, ideally, would run out of soybeans at about the middle of August, and there would be trains and barges loaded out of the Delta, headed their way and ready to be unloaded, but that doesn’t always work out as planned.

“When looking at 2013/2014 soybeans, I would probably price a portion of the crop in the spring, and then I’d be patient. Given that the situation is always dynamic, there are always some opportunities for some runs.”

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