Purdue News
Purdue News
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January 16, 2004 Economist: Soybean demand won't slow until prices hit brakesWEST LAFAYETTE, Ind. - It's the $8 a bushel question: Can soybean prices go higher than they are now? Unless and until consumption slows, the answer is an emphatic yes, said Chris Hurt, Purdue University Extension agricultural economist. Just how high soybean prices will climb is difficult to predict, Hurt added. But history, market tendencies and the potential for soybean imports from South America to make up for shortages in the United States all suggest prices could flirt with levels reached seven years ago. For soybean growers with crop still to be sold, that's great news, Hurt said. He quickly cautioned farmers against waiting too long to gain a few more cents per bushel, because the bullish market soon could swing the opposite way. "It's a lot easier to say that soybean prices will be high than it is to say what the highs will be," Hurt said. "I think we'll return to the 1997 futures high, when futures prices were around $9 a bushel. That could happen in a matter of weeks." The U.S. Department of Agriculture on Monday (1/12) announced that 2003 U.S. soybean and corn production was lower than estimated in November. Conversely, the USDA also reported record soybean use between September and November, leaving just 1.69 billion bushels in reserve on Dec. 1. A shrinking supply, coupled with an insatiable demand, means soybean consumption must slow, Hurt said. So far, prices in the $7-$8 a bushel range have failed to shock soybean buyers into cutting use. Even $9 a bushel might not be the market's breaking point, Hurt said. "Will that be high enough to get users to cut back and demonstrate that they feel the severe pressure of those higher prices? Probably not," he said. "It's going to take months of prices at $8 to $9 a bushel, or even higher. "There's also the distinct possibility we will be importing soybean oil and meal from South America as we get into the late spring and summer. How much we import relative to how much users cut back, will largely determine how high soybean prices might go." Hurt doesn't expect soybean futures to reach the record-high of near $13 a bushel. He projects the peak will fall somewhere between $9 a bushel and $11 a bushel. "The $11, representing the 1988 high, almost seems out of the question because of the possibility of bringing beans, bean meal and bean oil from South America," he said. The smaller-than-anticipated national corn crop portends better prices for that grain as well, Hurt said. "Corn prices are not as wildly bullish as soybeans are," he said. "With roughly 1 billion bushels in expected ending stock on Sept. 1, we saw our cushion evaporate. If we see stronger exports this winter than we anticipate and stronger domestic use, that's going to have to push corn prices up substantially. "I think cash corn prices will continue to move up through the winter, and that we can add 12 to 15 cents - or maybe even 20 cents a bushel - onto cash prices through the late winter and into the spring. Depending on where you are in the Midwest - the central parts of Indiana, Illinois and Ohio - that would push prices up from the current levels near $2.60 a bushel, to perhaps the $2.70 to $2.80 range on old crop corn." Hurt urged farmers to review their marketing plans and keep a keen eye on grain prices. "Producers need to look at the volume of crop they still have to price," he said. "I know of producers who have not priced any of their soybeans. They have big smiles on their faces right now. But they need to know that these markets will be quite volatile. None of us knows what the high will be. Just a small percentage of the time over the last 20 years have beans been at these kinds of price levels. Historically, these are very good prices. If producers have a lot of their crop left over, then I suggest starting a marketing program to get some of that grain priced to take advantage of these prices. "On the other hand, some producers are down to their last 10 or 15 percent of unsold grain, and they're saying, 'I'm going to hold on. I want to go right into the spring and see if we have some weather problems so that I can take advantage of some tremendous highs on beans.' I don't see anything wrong with that argument, either." Farmers with old crop corn should consider keeping the grain in storage and then plan to sell in the late winter or early spring, Hurt said. New crop pricing strategies include: • Soybeans - Consider selling a large percentage of expected crop in the next four months. Forward contracts are best if marketing 25 percent or less of projected production. Options should be considered when marketing between 25 percent and 50 percent of production. "When pricing above 50 percent, producers want to especially consider option strategies that do not commit delivery of a specific number of bushels," Hurt said. • Corn - Price between February and May. In its report, the USDA estimated total 2003 U.S. soybean production at 2.42 billion bushels, down 1 percent from the November forecast and the smallest production since 1996. Average yield was projected at 33.4 bushels per acre. Hoosier farmers produced 203.3 million bushels of soybeans, at an average of 38 bushels per acre. U.S. corn production for 2003 was estimated at a record 10.1 billion bushels, down 2 percent from the USDA's November forecast. Average yield was projected at 142.2 bushels per acre, off one bushel from the previous projection. Indiana produced 786.9 million bushels of corn, at an average of 146 bushels per acre. Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu Source: Chris Hurt, (765) 494-4273, hurtc@purdue.edu Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu Related Web sites: Purdue University Department of Agricultural Economics U.S. Department of Agriculture Crop Production Report
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