Purdue News

March 19, 1999 Soybean experts: Get used to low prices WEST LAFAYETTE, Ind. -- Ag economists at Purdue and Ohio State universities couldn't find a single ray of hope for soybean producers in the most recent crop production report from the U.S. Department of Agriculture (3/11). "The only bullish factor you can hope for is bad weather," said Chris Hurt, specialist for the Purdue Cooperative Extension Service. Ohio State agricultural economist Allan Lines said that as dismal as the report's projections are, they aren't pessimistic enough. The USDA projects a 10.3 percent decline in soybean exports, even though exports already are running 22 percent behind last year. "I'm a little concerned that USDA hasn't come to grips with the reality of this export situation," Lines said. The report points to several factors that add powerful downward pressure to already suffering soybean prices that are about $4.50 or $4.70 per bushel. First, it shows that the near-record South American soybean crop is bigger than first thought. "The estimate for soybeans in Brazil is 31 million metric tons -- up 500,000 metric tons from last month," Hurt said. Argentina's soybean production was bumped up in the report, too, from 18 million metric tons last month to 19.2 million. Second, low export expectations went even lower. "Domestic crush was reduced by 30 million bushels, and exports went down by 30 million bushels," he said. "That raises the carryover to 470 million bushels from last month's 410 million bushels." The all-time record high soybean carryover was 536 million bushels in 1985 -- a plateau Hurt said we could exceed in the 1999 crop year if the weather doesn't become a major player in reducing production. Making matters worse is the devaluation of the Brazilian currency, the real (pronounced ray-AHL), which is making Brazil's bumper crop of soybeans even cheaper than usual. The result has been a cancellation in export orders for U.S. soybean meal evident in the crush reduction. Lines said the USDA is soft on its export numbers probably because it's expecting the drastically low prices of U.S. soybeans to attract foreign buyers. That's wishful thinking, he said, given that Asia's economic recession, the Brazilian currency devaluation and increased worldwide production of oilseeds is pressuring soybean prices. All this, however, will not daunt U.S. farmers who, according to Hurt, plan to plant more soybeans than corn this spring. "In the Prospective Plantings Report due out March 31, the anticipation is that farmers will plan to plant a lot of beans," Hurt said. "One reason is lower input costs, but just as significant are the government loan levels that favor soybean planting over corn planting." So, will prices plummet? Hurt said probably not: "As bad as all this news is, the marketplace has largely anticipated the these kinds of adjustments, so we expect just a short-term weakness in the markets from this report." Subsequently, Hurt said, he anticipates soybean prices to come up slightly. "We expect that we'll see some recovery in spring, so we suggest that producers become more aggressive on selling on any rallies in soybeans, but particularly during May through June. "We're concerned that in late July and August, prices could approach the $4 amount. Cash pricing this spring could be near $5, however." Hurt said he's advising farmers not to store soybeans beyond July 4 because of the huge old crop and the potentially record-breaking crop on the way. "Consider buying a call option now, or in early spring, to take advantage of any upward price movement due to harmful weather," he said. "Then sell grain on the spring rally, even though the rally will be relatively weak -- in the $4.75 to $5 range." The news for corn and wheat is downright cheery by comparison. Exports for corn were up by 75 million bushels in the USDA report, and corn carryover dropped by the same amount. Hurt's pricing advice for corn largely is the same as that for beans: "Don't hold corn into the summer. If we see a normal crop on corn, cash prices will be in the $1.65 to $1.85 range at harvest time. Expect a 15- to 20-cent rally during spring planting to take cash prices up to $2.30 for the old and new crop." Hurt said a call option is advisable for corn as well. Lines also expects corn prices to run a harvest low of $1.75, which compares to $1.90 to $2.10 projected by the USDA for the '98 crop. However, corn exports are stronger than soybean exports because of smaller crops in production areas outside the United States, he said. The USDA projects that corn exports will be 1.8 billion bushels, or 296 million bushels more than in the 1997-98 marketing year. Domestic corn use for livestock has stabilized, he said. A sizable reduction in winter-wheat seedings in 1998 combined with an export increase of 25 million bushels allowed for bullishness on wheat. Hurt said he expects wheat prices to rise from the current $2.30 to $2.40 range to $2.50 or $2.60 during the next 30 days. Sources: Chris Hurt, (765) 494-4273; hurt@agecon.purdue.edu Allan Lines, (614) 292-5926; Lines.1@osu.edu Writer: Amy H. Raley, (765) 494-6682; ahr@aes.purdue.edu Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu To the Purdue News and Photos Page