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Corn+Soybean Digest

Time Is On Our Side

It never fails (for the last couple of years, anyway). Winter price surges in soybeans give Brazilian growers some of our best selling opportunities just as they start their harvest.

Understanding why that happens takes a shift in perspective. Instead of viewing the marketing year as an old-crop to new-crop affair, you must now consider the marketing year as a U.S.-crop to South American-crop cycle.

Already, that subtle change in thinking should begin to make clear why soybean prices have surged during winter months in recent years.

When we only dealt with the old-crop to new-crop cycle, pricing opportunities were often best just ahead of the U.S. harvest - when global supplies were the tightest. But most growers couldn't take advantage of those opportunities.

Now we're dealing with a much higher global demand base and every six months (just ahead of harvest in each hemisphere), global soybean stocks appear tight. Because the South American crop is the smaller of the two, the price rise posted just ahead of that harvest has the greater potential of the twice-annual price surge.

U.S. growers are now in a much better position to take advantage of the preharvest rally. Instead of storing the crop for up to 10 months in anticipation of the rally, U.S. growers must wait only four or five months. That single feature is key to why we're seeing February bottoms instead of traditional February breaks in grain prices.

This year, the late-February-to-March bean-price rally could last a little longer than usual. Normally, early planted and short-season soybeans are the first harvested in Brazil, and they make their way to port locations by mid-March. In December 1997, however, soggy field conditions prevented these beans from being planted. Instead of risking yield loss on the short-season varieties, Brazilian growers lumped most of their production in more normally developing varieties.

As a result, the first significant shipments of beans out of Brazil won't start until late March, at the earliest. That extends our prime exporting window by two to three weeks, upping the odds that global soybean supplies will appear squeaky tight by mid-March. That's when we see the best pricing opportunity of the spring - barring any significant rally led by a speedy retreat of El Nino.

Despite the delay of significant bushels of new-crop Brazilian soybeans, a few soybeans were harvested by January in Brazil. That supply, however, was very light and had little or no impact on U.S. soybean demand or prices.

Bottom line: At the many events I attend and speak at each year, I'm consistently asked, "How big is the Brazilian crop going to be this year?"

My standard answer has become, "I hope it's a big one!" Without a sizable South American crop, we face the extreme risk that demand won't be met, prices will climb too high, and the growth in the global demand base will be forced to take one, two or even three steps backward. With the market comfortable that a big Brazilian crop is on the way, end users buy beans very aggressively, upping the odds of a better-than-average pricing opportunity in February and March - just ahead of the world's next new-crop supply.

As a result, Pro Farmer sees bean storage paying off in a bigger and much quicker way over the next few years than has been seen in past U.S. marketing efforts. Simply put, it's still time to be patient with remaining old crop, but cock the gun and get your finger on the trigger to make more sales.

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