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"The pace of Chinese purchases and the
level of soybean product imports into the United States will also be
closely watched," said Darrel Good. "Perhaps the price decline will
be more orderly and gradual over a longer period of time as the
market makes the transition from small supplies to more abundant
supplies in 2004 and 2005.
"In any case, the current high price
environment provides a challenge for producers in timing the pricing
of remaining old crop supplies as well as expected 2004 production.
That's the bad news. The good news is that high prices provide very
profitable marketing opportunities."
Good's comments came as he reviewed
soybean prices that continue to push to higher levels, driven by
almost daily declines in the expected size of the current South
American soybean harvest. Deteriorating crop conditions there
provide significant price support when coupled with the need to
sharply reduce the pace of domestic processing of U.S. soybeans.
The pace of domestic processing of
soybeans during the first half of the 2003-04 marketing year was
about equal to that of last year. Smaller supplies imply that the
pace of processing will have to slow sharply during the last half of
the marketing year. In many respects, 2003-04 has been very similar
to the 1976-77 marketing year.
"Both years were characterized by a
small harvest that was only recognized late in the growing season
and a failure of consumption to make early adjustments to the short
supply," said Good. "Prices were too low early in the 1976-77
marketing year and moved sharply higher in the spring of 1977 in
order to force reductions in domestic use.
"The fundamental difference this year
compared to 1977 was the expectation of large South American
supplies that could provide soybean meal and oil to the U.S. market
if needed. The smaller-than-expected crop there is still large
enough to meet world needs in the short run, including imports by
the United States, but means that the United States needs to produce
a large soybean crop in 2004."
In contrast to the pace of domestic
crush, U.S. exports have declined in the face of smaller supplies.
The USDA projects marketing-year exports at 890 million bushels,
14.8 percent below the exports of a year ago. Through March 18,
which is 28 weeks into the marketing year, the USDA's report on
export inspections indicated that cumulative shipments were 11.5
percent smaller than during the same period last year.
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of second column in this article]
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As of March 11,
outstanding export sales of soybeans for the current marketing year
stood at 93 million bushels, 31 million bushels less than
outstanding sales on the same date last year.
"Perhaps exports will
be less than projected, allowing the domestic crush to be a little
larger," said Good. "Outstanding sales of U.S. soybeans for delivery
during the 2004-05 marketing year are relatively large, also
totaling 93 million bushels on March 11. Almost 80 percent of those
sales are to China."
The current strong
rally in soybean futures prices has resulted in a scramble to
forecast the top in the market. Targets include the April 1977 high
in May futures of $10.765, the June 1988 high in July futures of
$10.99, and the all-time high of $12.90 for July 1973 futures in
June 1973.
"Still, others
suggest the strong likelihood of new all-time highs similar in
magnitude to those which occurred in corn and wheat in the spring of
1996," said Good. "For new crop November futures, targets include
the highs reached over the past 30 years, ranging from $8.02 last
year to the all-time high of $10.46 reached in June 1988. There are
a cluster of highs ranging from $9 to $9.685."
Good added that
perhaps as important as when and at what level the high price occurs
is the question of the pattern of price decline following the high.
In almost all instances of extreme price highs in modern history
(post-1972), prices have declined very rapidly in a very short
period of time.
July 1977 futures
peaked at $10.64 in late April 1977 and traded below $6 in mid-July.
July 1988 futures reached the $10.99 high in mid-June and expired at
$8.29. Similarly, November 1988 futures reached a high of $10.46 in
mid-June and expired at $7.28. Finally, July 1973 futures reached a
$12.90 high in early June, traded to $6.30 in early July and expired
at $11.87 (bid).
"History does not provide a forecast for
the current situation but illustrates that prices could become even
more volatile before reaching a high and could decline sharply in a
relatively short period of time," said Good.
[University
of Illinois news release]
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