 "The weak basis in many areas suggests storing the crop to
capture a post-harvest strengthening of the basis," said Darrel
Good. "Hedging the stored crop would allow the producer to
benefit from any such improvement and to capture the current
high prices. Storing the crop unpriced would also allow the
producer to capture an improving basis, but at the risk of lower
prices and the potential for higher prices."The weak basis
and large carry in the corn market also make the storage of that
crop attractive. In cases of limited storage capacity, producers
may need to examine the relative returns to storing soybeans and
corn. In central Illinois, the net return to corn storage, as
measured by potential basis improvement, exceeds that of
soybeans due to the high interest opportunity cost of holding
soybeans."
Good's comments came as he reviewed soybean prices, which
have moved sharply higher since mid-August. November 2007
soybean futures traded to about $8 in mid-August, established a
contract high of $9.965 on Sept. 19 and closed at $9.79 on Sept.
21. The average spot cash price of soybeans in central Illinois
was near $7.50 in mid-August and at $9.165 on Sept. 21.
"Soybean prices have been supported by the smaller U.S.
supply of soybeans forecast by the USDA on Sept. 12, the need to
motivate an increase in soybean acreage in South America and
prospects of continued strong Chinese demand for soybeans," he
noted.
"These three factors -- the size of the U.S. crop, South
American acreage and Chinese demand -- will continue to direct
prices. In addition, prospects for U.S. soybean acreage in 2008
will have significance for price direction."
The USDA projects that the 2007-08 marketing year ending
stocks of U.S. soybeans will total 215 million bushels, or 7.3
percent of projected use. Consumption is forecast at 2.964
billion bushels, 127 million less than the record use during the
2006-07 marketing year.
The expected decline is for exports, as the South American
share of the world soybean market is projected to grow from 52
percent in 2006-07 to 61 percent this year.
Good said that the projected U.S. crop of 2.619 billion
bushels reflects a national average yield of 41.4 bushels per
acre, the lowest in four years and 1.6 bushels below the record
yield of 2005.
"Like corn yields, reports of actual soybean yields have been
relatively high, suggesting that the average may be higher than
currently forecast," he noted. "The early yield forecasts --
August and September -- are based partly on a survey of producer
expectations of yields. Reported expectations may have been
below the actual yields being experienced. Soybeans will remain
in tight supply but perhaps not as tight as currently forecast."
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In its report of Sept. 12, the USDA projected a 6 percent increase
in soybean acreage in Argentina, a 4 percent increase in Brazil and
a 4.5 percent increase in all of South America.
"On the surface, projected acreage and average yields in South
America in 2008 would appear to fall short of offsetting the 18
percent decline in U.S. production," said Good. "However, current
stocks of soybeans in South America are quite large. Stocks at the
end of the 2006-07 marketing year are estimated at 1.545 billion
bushels, or 61 percent of projected use.
"The stocks-to-use ratio is large since the USDA adjusts the
South American marketing year to an October-through-September year,
about the middle of the actual marketing year. There may be room to
reduce stocks even further during the 2008-09 marketing year so that
increased consumption doesn't have to be met entirely with increased
production. The recent strength in soybean prices may motivate a few
more acres to be planted to soybeans as well."
U.S. soybean exports will depend heavily on Chinese demand. As of
Sept. 13, the USDA reported that export commitments for delivery to
China in the 2007-08 marketing year totaled 174 million bushels,
compared with 125 million bushels that had been committed a year
earlier.
"Last week, China announced at least a temporary reduction in the
import tax on soybeans, from 3 percent to 1 percent," said Good.
"The reduction is aimed at increasing imports to augment the small
harvest and to help curb the inflation in food prices.
"For now, Chinese demand for U.S. soybeans will likely remain
strong, encouraged to some extent by the low value of the U.S.
dollar."
"U.S. producers may need to increase soybean acreage in 2008,
depending on the outcome of the South American crop and prospects
for world stocks. Some early surveys suggest that U.S. producers
have already planned a significant increase in acreage, motivated by
opportunities to sell the 2008 crop above $9.
"However, 2008 corn prices near $4 makes corn a potentially more
profitable crop than soybeans in many areas, even with escalating
production costs," said Good. "The market's job of directing
planting decisions in the United States in 2008 is far from done."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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