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Are soybean prices too low?

Jeff Caldwell 09/26/2011 @ 1:33pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

Concerns about the instability of the world economy and resulting uncertainty about global grain demand have been the biggest driver of the slide in grain prices lately. But, one economist says the grains may be lower than they should be right now, as market signals remain up in the air moving into the bulk of soybean harvest in the Midwest.

As the macroeconomic soap opera continues, it's been taking down grain prices for the last month. But, when looking at the grains versus the livestock sector, it shows there's either been an overcorrection in the grains or their values were already "pushed too high" prior to the economic meltdown's flow into the grains.

"The 15% decline in soybean prices in less than four weeks raises the question of whether the price decline has been overdone. The price decline appears particularly large when compared to declines of 8% to 10% in livestock and livestock product prices from spring/summer highs," says University of Illinois Extension ag economist Darrel Good. "One might expect that demand concerns would result in larger price declines in the livestock sector than in the crop sector. It may have been that crop prices were pushed too high in August on the basis of crop concerns."

Corn and wheat prices have sunk by around 18% and 20%, respectively, Good adds.

How will we know if the grain price dip -- especially for soybeans -- has been overdone? First, watch upcoming supply and demand estimates, the economist says, namely the one USDA will release this Friday morning.

"Based on consumption forecasts, the USDA’s World Agricultural Outlook Board has projected [old crop soybean] stocks at 225 million bushels. The September stocks report has often deviated from expectations and on occasion has resulted in revisions of the previous year’s production estimate," Good says. "A large deviation would be required to substantially alter the supply outlook for the current year."

Then, there's projected soybean production: Good says it's likely soybean yields will likely be estimated higher in next month's USDA crop production outlook...that is, if the freezing and frosting temperatures of the last 2 weeks haven't hampered yields in too large an area.

"From 1975 through 2010 (36 years) the September yield forecast exceeded the August forecast 17 times, as it did this year.  In 10 of those 17 years, the October U.S. average yield forecast exceeded the September forecast," Good says. "The increase ranged from 0.1 bushels to 2.3 bushels.  In 8 of those 10 years, the January yield estimate exceeded the October forecast. There is some tendency, then, for a yield increase in September to be followed by further increases."

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