Friday, May 22, 2009

Soybean Market

Since the first week of March new-crop soybeans (November 2009 futures) have gained about $2.40 per bushel. There are a number of factors pushing soybeans higher. First, the value of the U.S. dollar relative to foreign currencies has been steadily declining since March, thereby making U.S. products more appealing to foreign nations. China has shown strong interest in purchasing U.S. old-crop soybeans. Second, production in South America has been shrinking, leaving fewer tons of available soybeans for export. This pushes importing countries to the U.S. to purchase soybeans. And third, soybean meal has had good export numbers, thereby increasing demand for soybean crushing. These three effects have taken previously average ending stocks and made them tight. Currently, the USDA has ending stocks at 130 million bushels or 80 million bushels fewer than the February report. Ending stocks are the lowest since the 2003-2004 crop year.
As for marketing new-crop soybeans producers should be selling in small increments into this price rally. However, the amount of grain prices should not exceed 30 to 40 percent of expected production. As of 5/22/09 November soybean futures are trading around $10.29 per bushel, a value that should exceed production costs. The carry between November and January is only 2 cents. This indicates to me that traders are expecting a small crop because they are not paying much to store. The carry between November and March is -6 cents. This negative carry indicates to me again that traders are expecting a small crop and want soybeans delivered in November. Food for thought; if traders are expecting a small crop and want soybeans delivered in November and they do not get all the want...then what do you think they will be willing to pay for soybeans in January or March? –probably a lot more. However, as we progress into the growing season and more information about the condition of the crop is revealed traders’ expectations can quickly change. If you have already sold up to 40 percent of your expected production I would hold tight on the other 60 percent. By Cory G. Walters, UK Ag Economist.

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