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Soybean prices     Send a link to a friend

[JAN. 19, 2005]  URBANA -- If the South American soybean crop continues to make good progress, soybean prices may come under additional pressure, said a University of Illinois Extension marketing specialist.

"Cash prices will likely decline below the Commodity Credit Corporation loan rate, and there is an outside chance they could challenge the October 2004 lows," said Darrel Good. "Uncertainty about the magnitude of U.S. soybean acreage in 2005 and the potential impact of soybean rust, along with normal weather uncertainty for the 2005 growing season, will provide some underlying support to prices and may contribute to more price volatility from April forward."

Good's comments came as he reviewed soybean prices, which declined sharply from the spring to the fall of 2004 as the market made the transition from shortage to abundance. To date, however, prices have not declined to the extreme lows expected to occur as a result of the surplus generated by the record crop of 2004.

March 2005 soybean futures declined to $5.10 in early November, and the average overnight spot cash bid in central Illinois reached a low of $4.80 on Oct. 13.

"That low is well above the lows reached in the 1998-99 through 2001-02 marketing years, when supplies were less burdensome than during the current marketing year," said Good. "Lows in those four years ranged from $3.87.5 to $4.29.5 per bushel. Futures prices recovered quickly after harvest, even as the production and carry-over projections increased.

"March 2005 futures traded to the $5.60 level in late November and again in mid-December. The cash price of soybeans in central Illinois traded to a high of $5.15.5 on Nov. 23 and again on Dec. 27 as basis strengthened significantly. The cash price was as high as $5.47 as recently as Jan. 10."

Good said the higher-than-expected prices since mid-October reflect a number of factors. Reportedly, producers have been reluctant to sell soybeans following the large price declines into harvest. At the same time, the market required large quantities of soybeans to refill the pipeline and to meet a large increase in domestic and export consumption of soybeans. The domestic monthly soybean crush declined to an eight-year low of 103 million bushels in August 2004 but exploded to a record 156 million bushels in October 2004.

Similarly, monthly exports declined to a trickle of about 11 million bushels in August 2004, but October exports were the largest ever for that month, at 176 million bushels, and November exports were even larger, at 183 million bushels.

"The exports were driven by shipments to China," Good noted. "From September 2004 through November 2004, China imported 197 million bushels of U.S. soybeans -- half of all the U.S. soybeans exported and 24 percent more U.S. soybeans than imported during the same period in 2003," Good said. "The combination of reluctant selling by producers and the market's need for large quantities of soybeans generated very strong basis levels and an inversion in the structure of futures prices."

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Last week, the USDA production report indicated a slightly smaller 2004 U.S. crop than forecast in November. The January estimate of 3.141 billion bushels compares with the November forecast of 3.15 billion bushels. In addition, the USDA increased the forecast of the size of the domestic crush during the current marketing year by 15 million bushels, lowered the projection of year-ending stocks by 25 million and increased the forecast of the 2005 marketing-year average farm price by 15 cents per bushel.

"Ironically, soybean prices declined following the release of the new projections," said Good. "March 2005 futures declined 24 cents, and the central Illinois cash price declined 22 cents, to $5.20, in the three trading days following the report."

To some extent, soybean prices were able to overcome an extremely bearish fundamental situation from October 2004 through early January 2005, but they now appear vulnerable to those same fundamental factors, he added.

The monthly report by the National Oilseed Processors Association released on Jan. 14, showed a smaller-than-expected soybean crush in December 2004. In an unusual pattern, the December crush was smaller than the November crush and was only 5 million bushels, or 3.6 percent, larger than the crush in December 2003. At the same time, soybean oil inventories at the end of December 2004 were larger than at the end of November 2004.

"The slowdown in the domestic crush was reported at the time that many analysts are also anticipating a slowdown in export sales to China," said Good. "While Chinese demand remains strong, South American supplies will provide seasonal competition for U.S. soybeans over the next several months. As of Jan. 6, the USDA reported 60 million bushels of outstanding export sales to China, compared to 104 million bushels at the same time last year. The USDA continues to project South American soybean production at a record 4 billion bushels, 20 percent larger than last year's harvest."

[University of Illinois news release]

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