 "Decisions for the 2009 crop are more difficult," said Darrel
Good. "November futures are slightly above the spring price
guarantee for crop revenue insurance, so there is some downside
risk for unpriced new crop soybeans. That risk is small for the
insured portion of the crop but greater for the uninsured
portion."The real dilemma surrounding the pricing of the 2009
crop, however, is associated with determining value in a rapidly
changing economic environment."
Is economic recovery and demand strength imminent? Is the
economy headed for a period of rapid inflation, and how would
that influence soybean prices?
"Such uncertainty favors a marketing strategy of frequent,
small sales," said Good. "There is more than a year left to sell
the 2009 crop."
Good's comments came as he reviewed soybean prices. Soybean
futures contracts for the 2008 crop sunk to contract lows in
early December 2008, and the average spot cash price in central
Illinois dropped under $8 per bushel. Prices rallied sharply
into early January, with the central Illinois cash price moving
above $10. Prices collapsed again in early March, with the cash
price dropping to about $8.35, but rebounded sharply last week
with the central Illinois spot cash bid ending the week at
$9.38.
"Much of last week's rally in prices was associated with
higher energy prices, a rally in financial markets and a weaker
U.S. dollar," he said. "These markets, in turn, were influenced
by U.S. monetary policy that ignited expectations of an upcoming
period of rapid inflation in the U.S. economy.
"Developments within the soybean complex also continue to be
somewhat supportive for soybean prices."
On March 11, the USDA confirmed prospects for a relatively
small South American soybean harvest. That crop is now forecast
at 3.894 billion bushels, 30 million smaller than the February
forecast and 364 million less than harvested in 2008.
"The smaller crop bodes well for the export demand for U.S.
soybeans for the next 12 months," he noted. "In addition,
potential disruptions to Argentine exports due to ongoing
disputes over export taxes may send more near-term export
business to the United States.
"The USDA is already forecasting record soybean exports for
the current marketing year."
Census Bureau export estimates from September 2008 through
January 2009 exceeded cumulative USDA estimates by 32 million
bushels. If that margin continues through mid-March, weekly
shipments from March 20 through Aug. 31 will need to average
only about 11 million bushels per week to reach the USDA
projection.
New sales of about 4.5 million bushels per week will be
needed to reach sales at the projected level of exports of 1.185
billion bushels.
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"The magnitude of sales to China, which has accounted for 58 percent
of U.S. export business so far this year, will be watched closely
for indications of the strength of old crop export demand," Good
said.
The weak link in U.S. soybean demand so far in the 2008-09
marketing year is the slow pace of the domestic crush. Crush during
the first five months of the year totaled 707 million bushels, 84
million less than during the first five months of the previous
marketing year.
"The small crush reflected reduced consumption, export and
domestic, of both soybean oil and soybean meal," he said. "Meal
exports, however, were large in January 2009, and data from the
Oilseed Processors Association indicated that the February crush was
larger than generally expected.
"Census Bureau estimates for February are not yet available."
Good said a major factor for soybean price prospects is the
expected size of the 2009 U.S. crop. Some insight will be provided
by the USDA's March 31 Prospective Plantings report. However,
substantial acreage uncertainty will persist beyond that report.
"The market likely underestimates the ability of producers to
adjust planting decisions after March 31," he observed. "In
addition, the question of total crop land acreage planted in 2009
will remain after March 31.
"Some focus is on the upper Plains right now, where melting snow
and rainfall will create flooding issues. The market is always quick
to think that acreage could go unplanted. That may or may not happen
this year."
In addition, a continuation of higher crop prices may result in a
smaller reduction in total planted acreage than has been forecast,
he added.
"Longer term, yield prospects for the 2009 U.S. soybean crop will
become important," he said. "A return to a trend yield near 42.5
bushels per acre, for example, would add about 215 million bushels
to production in 2009 with no increase in acreage."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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