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Corn+Soybean Digest

SOYBEANS: Will History Repeat?

I have been using the quote, “I have a great memory — it's just short,” for years and frankly don't know who to attribute it to. It has a lot of meaning for those of us who have passed the 50-year mark.

Another saying I have used: “The only thing we have learned from history is that we learn nothing from history.”

My concern is this — are we making the mistake of expecting history to repeat itself with this year's soybean market?

Last year was a very unusual year for soybeans. The U.S. crop was as close to a disaster as we have had in years and the South American crop was nearly identical.

Soybean yields in the U.S. dropped from an average of 38 bu./acre in 2002-03 to 33.4 bu./acre in 2003-04. South America, specifically Brazil, was hit with the worst case of Asian rust ever recorded, which resulted in a sharp drop in yields. But because of an increase in planted acreage, overall production was nearly unchanged.

What are the odds that both the U.S. and South America will have significant drops in production back to back? What are the odds that the opposite could happen — a sharp increase in production in both countries at the same time?

By the time you get this magazine, you'll most likely already have the October crop report. Unless something shocking occurs, it will show that soybean yields are substantially higher than last year and that U.S. production will be close to 2.9 billion bushels vs. last year's 2.4 billion. This will result in carryover supplies almost double those of a year ago.

That said, the U.S. crop is only half of the equation. Based on USDA statistics, the average price of soybeans at the farm last year was $7.35. The estimate this year is $5.80.

Combine this sharp increase in production with just a normal crop in South America and the result is a graph that looks like the one above. Worldwide soybean production would be at a new all-time high, and worldwide ending carryover stocks would sharply surpass those of last year.

Where Are Prices Headed?

At the risk of sounding like a broken record, let's remember that big bull markets turn into even bigger bear markets.

Markets will give you six minutes to sell the top and six months to sell the bottom.

This last bull market came and went so fast and the bear market has accelerated so quickly to the downside, that many of your neighbors have missed the majority of this move. Once the news becomes obvious that the crop is big, it's normally too late.

But just like last year when the last surge of the bull market came as a result of crop problems in South America, it may be the opposite this year.

Some may want to gamble and hope for another crop disaster in South America. All I can say is that history and the odds are not on your side.

My guess is we'll see the opposite of last year. The biggest bull has already turned into the biggest bear and it's still not over. By the time you read this soybean prices may already be in LDP territory. If they aren't, the odds are high that they will be by the time spring rolls around.

Ironically, even with these prices and because of high yields, and now LDPs, the majority of soybean farmers in the U.S. will gross more per acre than they did last year when soybeans hit $10. $10 soybeans don't do any good if you don't have any to sell. $6 beans, combined with an LDP and large yields, equal big profits.

Profits and prices are not the same thing. This should be a profitable year for U.S. soybean producers.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit

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