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"Three weeks ago, we pondered the question of whether or not
marketing year highs had been established in the corn and
soybean markets," said Darrel Good. "It was noted that February
highs had not occurred previously and that odds favored new
highs, particularly in the corn market. "As it turns out, new
marketing year highs have been established for soybean prices
but not for corn prices."
In addition to prospects for the 2007 U.S. crop, soybean
prices will be influenced by planting decisions in South America
later this year.
"Higher fertilizer prices and a weak U.S. dollar make
soybeans less attractive in Brazil," he noted. "Still, at
current futures prices, a substantial increase in soybean
acreage in South America can be anticipated this year."
Good said that the average overnight cash price of soybeans
in central Illinois reached a high of $7.705 on May 25, 20 cents
above the February high. In addition, November 2008 and November
2009 prices reached new contract highs, and November 2007
futures traded within 1 cent of the contract high.
"Futures settlement prices on May 25 translated to marketing
year average farm prices of about $8.25 for the 2007-08
marketing year, $8.45 for the 2008-09 marketing year and $8.15
for the 2009-10 marketing year," said Good.
"The highest marketing year average farm price to date is
$7.83, established in 1983-84."
The strength in soybean prices during the month of May
reflected higher prices for both soybean oil and soybean meal.
July 2007 soybean oil futures increased about 3 cents per pound
while July 2007 soybean meal futures increased about $20 per
ton.
Soybean meal prices reversed the lower trend that started in
late February, while soybean oil prices continued the upward
trend that began in early November 2006. July oil futures are
about 11 cents (44 percent) above the early November low, while
July meal futures are nearly $50 (29 percent) above the early
November low but nearly $30 below the late February high.
"Much of the recent strength in soybean prices began with the
USDA's May 11 forecast of supply and consumption for the 2007-08
marketing year," Good explained. "Prospects of a sharp decline
in U.S. soybean inventories by the end of the 2007-08 marketing
year result from a combination of a decline in harvested acreage
from 2006 (8.5 million), a lower U.S. average yield (1.2
bushels) and annual consumption remaining near 3.04 billion
bushels.
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"Soybean prices have received additional strength from a
less-than-ideal start to the U.S. growing season. Excess moisture in
parts of the western Corn Belt, dryness in parts of the eastern Corn
Belt and drought in the Southeast all contribute to uneasiness about
the 2007 crop. Dryness in some areas of China has also been noted."
The rate of consumption of U.S. soybeans remains high. The USDA
reports cumulative exports through May 24 at 966 million bushels,
suggesting that only 114 million bushels need to be shipped during
the last 14 weeks of the year to reach the projection of 1.08
billion for the year.
"Through March, however, USDA export estimates exceeded Census
Bureau estimates by 30 million bushels," said Good. "Such a large
difference is unprecedented and adds some confusion to the export
picture. The difference between the two estimates amounts to about
2.1 million bushels per week through the end of August."
The Census Bureau reported that the April 2007 soybean crush
totaled 144.9 million bushels, 9.4 million more than crushed in
April 2006. The domestic crush from September 2006 through April
2007 totaled 1.209 billion bushels, 3.8 percent larger than the
crush of a year ago. For the year, the USDA projects an increase of
only 1.8 percent.
"The increase in the domestic crush has been driven by soybean
meal demand," he said. "That demand may get an additional boost from
prospects of expansion in broiler production. This is a reversal of
earlier prospects that higher corn prices would lead to a cutback in
broiler production."
Continued speculative demand has also contributed to higher
futures prices in the soybean complex, he added.
"The combination of that speculative demand and large current
inventories of soybeans have kept basis generally weak," said Good.
"The average central Illinois cash bid was 42 cents under July 2007
futures on May 25. This is about 7 cents weaker than the very weak
basis of a year ago and about 35 cents weaker than the typical basis
for this time of the year."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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