How high for soybeans
Over the last six weeks, significant developments have provided support for soybeans. This has been reflected in a rally as the July soybean futures moved from a low of $8.41 on March 2 to a high of over $11.50 this week. The primary catalyst has been a decreasing crop production estimate out of Argentina. Severe drought has ravaged that country, and on consecutive monthly USDA reports there has been a decline in production estimates. Estimates earlier in the growing season were well over 40 million metric tonnes. The latest private estimate this week expects a crop of 32.5 million metric tonnes. Declining world production and carryout has had a positive impact on U.S. prices.
The other development has been the continuous, strong buying from China. An active export market has continued to reduce U.S. carryout, which is now forecast at 130 million bushels from the 2008/2009 crop. This figure started out over 200 million in the fall months. Keep in mind that the trend of carryout may be more important than the actual carryout figure. The carryout figure generally sets the tone for a price level, while the trend of carryout sets the tone for price trend. A continuous declining carryout on a month-to-month basis has helped to provide for a general recovery of soybean prices.
Lastly, the energy complex has moved upward with crude oil futures reaching their highest level this week in more than six months. A weaker U.S. Dollar has provided support as well, as the index this week traded at its lowest level since December. A stock market recovery, which began the first week of March, has also aided support for higher bean prices.
Where from here? Carryout is at five-year low levels and would suggest that the market can continue to move upward if in fact a rationing of supply is necessary. There is continuous talk that China may be just about done buying, but so far they have continued to come into the marketplace, buying more each time after these rumors surface. Another rumor has China willing to buy U.S. beans up to $12.00 board price. In reality, it may be anybody's guess when China stops buying beans. What we have seen this winter is a need for protein products, and if South America or the U.S. stumble in production, the bean market will reflect this concern. The world has a growing appetite for protein products, and beans are at the forefront.
Wet planting conditions in much of the Midwest, along with higher input costs for corn have producers considering switching acreage to beans. While this yet remains to be seen, it is a growing possibility. The next two to three weeks will be critical. As of this writing, we are not convinced that farmers will aggressively switch to beans, but the possibility needs to be acknowledged. More acres could result in a rapid increase in carryout. The USDA is currently projecting the 2009/2010 carryout at 230 million bushels. However, if 3 million acres of additional beans were to be planted, assuming 40 bushels per acre, this could add 120 million bushels to carryout, or push this level up to 350 million, a level that does not warrant $10.00 board price on new crop beans.