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"It appears that the November 2006 futures price may at least
retest the contract high," said Darrel Good. Good's comments
came as he reviewed the soybean market.
"Soaring corn and wheat prices have been the center of
attention in recent weeks," he said. "Now, the soybean market
appears to be playing catch-up."
November 2006 soybean futures reached a contract low near
$5.37 in early September 2006. The average spot cash price in
central Illinois reached a low of $5.045 on Sept. 6, the lowest
price since February 2005.
"That price stood at $6.15 on Oct. 27," said Good. "November
2006 futures traded to a high of $6.43 in the Oct. 30 overnight
market. The high for that contract is $6.60, established in July
2005. November 2007 futures traded to a contract high of $6.89
in that overnight session.
"The 20 percent increase in soybean prices over the past
seven weeks has come from about equal increases in soybean meal
and soybean oil prices," he said. "Basis levels have generally
strengthened on the rally. The central Illinois basis is the
strongest for this time of year in six years."
Higher prices, he noted, have come in the face of the harvest
of a record-large U.S. crop, approaching 3.2 billion bushels.
The USDA will release a new forecast of crop size on Nov. 9,
with expectations that the forecast will not be smaller than the
October forecast.
In addition, most continue to see the potential for a
record-large South American harvest in 2007 and a further
buildup in world stocks this year.
"The speculative interest that is pushing soybean and soybean
product prices higher is driven by prospects for strong demand
and concerns that U.S. producers might reduce soybean acreage
too much in 2007," said Good. "Basis levels are likely being
supported by a generally slow harvest pace."
Through the first eight weeks of the 2006-07 marketing year,
the U.S. exported about 209 million bushels of soybeans, 51
million above the total of a year ago. All of the major buyers
have imported more U.S. soybeans than at this time last year.
Unshipped sales of U.S. soybeans on Oct. 19 totaled 310 million
bushels, compared with 218 million on the same date last year.
"Sales to China essentially account for all of that
increase," said Good. "For the year, the USDA projects U.S.
soybean exports at 1.145 billion bushels, 20.8 percent more than
exported during the 2005-06 marketing year.
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 "Current commitments -- shipments plus outstanding sales -- are
40 percent larger than at this time last year. The rapid start to
the export program is in sharp contrast to the slow start of a year
ago and adds confidence that the USDA forecast of record-large
exports can be achieved."
The Census Bureau reported the September 2006 U.S. soybean crush
at 142.3 million bushels, a record crush for the month of September
and 9.1 million more than crushed in September 2005. The large crush
in September supports the USDA's projection of a record crush of
1.775 billion for the year.
"Even with a record yield of 11.835 pounds of oil per bushel of
soybeans crushed, stocks of soybean oil held at processing plants
declined for the month," Good said. "Stocks at other locations are
not reported, so that the calculation of soybean oil consumption
during the month using just mills stocks is not completely accurate.
"However, apparent disappearance of U.S. soybean oil during
September 2006 totaled 1.777 billion pounds, just shy of the
all-time record monthly disappearance of 1.785 billion pounds
reached in November 2004."
Stocks of U.S. soybean oil are still quite large, but the
inventory is expected to decline significantly over the next several
months. The average yield of oil from the 2006 crop is expected to
be lower than the record yield of the 2005 crop, and domestic
soybean oil consumption is expected to expand more rapidly as
biodiesel production increases. The use of all fats and oils
(excluding crude soybean oil) in the production of methyl esters
grew from 106.6 million pounds in April 2006 to 178.9 million in
August 2006.
"On the supply side, there is apparently some concern that high
wheat prices have resulted in a significant increase in U.S. winter
wheat seedings and that higher corn prices will attract too much
corn acreage in the spring, resulting in a sharp decline in U.S.
soybean production in 2007," said Good. "While current prospects for
large U.S. and world stocks of soybeans at the end of this year
suggest that soybean acreage should be reduced in 2007, the concern
is that the decline could be too extreme if soybean prices are not
competitive with corn.
"A November 2007 soybeans futures price near $7 is likely high
enough to keep soybeans sufficiently competitive with December corn
futures near $3.40. The more important question may be, 'How will
2008 South American production respond to $7 soybeans?' A large
increase in acreage there would imply the need for fewer acres in
the United States."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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