What Are You Waiting For?

During a recent series of statewide FAPRI (Food and Agricultural Policy Research Institute) outlook presentations producers in attendance have sometimes been asked, "Do you still have any soybeans?" Some responded that they did and others didn't directly answer the question, but the smiles and nods suggested they also have some soybeans! The response to the follow up question, "What (price) are you waiting for?" is usually even more subdued. Some suggest maybe $10 and $11 has been mentioned, but this question often goes unanswered.

While most will admit that it is nearly impossible to sell at the market's highest price, everyone would like to get as close to the top as possible. As with any soybean bull market, price projections seem to move higher and higher. With $10 nearby soybean futures prices a reality, predictions of $11, $12 or "beans in the teens" becomes more common. Sometimes it appears the sky is the limit. While these price hopes may supply topics for coffee shop discussions, if you have any soybeans left, what is a realistic approach to selling?

Current prices represent the 4th highest soybean prices ever. Ten-dollar plus soybeans have only been offered three times and the possibility of selling at $11 or $12 only once. While these prices have been predicted several times in the past, beans in the teens has never occurred in the soybean futures trading. The all-time-high of $12.90 occurred in June of 1973. $10.99, just one-penny short of $11, occurred during a widespread drought in June of 1988 and $10.76 was offered in April 1977. The other four times the market offered $9 plus soybeans (1974. 1980, 1983, 1997) prices peaked below those currently offered by May 2004 futures contract prices.

Why higher prices? The price rally began as a result of a short 2003 soybean crop and strong demand. Prices needed to "ration" soybean use in order to meet USDA's ending stocks projections. USDA appears to accept 125 million bushels as "pipeline" levels or as low as ending stocks can go. They have maintained this estimate for five months in spite of strong domestic and export use that appears to have exceeded their projections for slower demand. This has suggested much higher prices are need to "choke off" demand in order to avoid running out of soybeans sometime this summer. Recently, production concerns in South America have increased supply worries and "added fuel" to speculative buying. This combination of supply and demand factors has sent prices higher, seeking price levels that would ration the remaining short supplies of U.S. soybeans.

What are the downside price risks? Opinions on the amount of production vary, but harvest of projected record production has begun in South America and world ending stocks are expected to remain relatively large. While some of the more pessimistic estimates of rust and dry weather damage to Brazilian and Argentine crops would tighten world supplies, they would still be more than adequate to meet projected demand needs. Significantly larger U.S. imports of soybean meal and oil are anticipated, offsetting tight domestic supplies. It also appears that in spite of concerns about the risk of Asian rust, USDA believes that imports of South American soybeans could occur with minimum risk. Signs of rationing are also becoming evident as the U.S. export pace slows, some sales have been moved to the '04-'05 crop and other sales have been cancelled. High prices also send producer signals to increase production in the year ahead, with acreage shifts from wheat and other crops along with more double crop acres. Increased acreage in the U.S., followed by a similar response in South America suggests domestic and world supplies will increase. Only the possibility of unfavorable weather and another year of low yields appear to stand in the way of an eventual downside price move.

How high will prices go? No one really knows. $10 has been reached, and higher prices can't be ruled out yet. However, past history illustrates that prices cannot be sustained at these levels for very long. Once prices peak, buyers will disappear as everyone wants out and prices may "drop like a rock." For those who are intent upon following the market to a peak, it is necessary to be prepared to sell quickly. While $11 or higher prices would be nice, don't let prices well into the $9 range get away on the way down-especially if holding a significant percentage of old crop soybeans. Remember, any sale of soybeans above $9 is a good sale, regardless of how high they go!

New Crop Sales Opportunities?

December (new crop) corn futures have been trading near $3.00. Historically, harvest time prices in the $2.70 to $3.00 range are "good prices." Three-dollar corn has been available at some time during harvest (Oct-Nov) in five of the last twenty years. However, in four of those five years, harvest time $3+ offerings were very brief as prices were declining to lower levels. Only in 1995, when prices continued to rally toward record highs in 1996, were $3+ prices offered throughout harvest in more than twenty years.

Early supply/demand estimates suggest that current new crop corn prices offer early sales opportunities. A variety of private estimates anticipate a wide range of average prices for new crop corn-from lows near $2.15 to highs of $3.35 or more depending upon acreage and production. Only private analysts' bullish scenarios result in price expectations above what is currently offered in December '04 corn futures. FAPRI and USDA February projections suggest average prices of $2.35 to $2.60. Strong demand potential and weather uncertainty ahead could result in higher prices, but current prices appear to be offering an above average opportunity to begin making or add to new crop corn sales.

New crop (November) soybean futures have traded above $7.50. Soybean harvest time (Oct-Nov) prices above $7.00 have occurred in only four of the last twenty years. The volatile soybean market represents considerable price risk during the next few months. Private forecasters suggest possible average prices from less than $5.00 in bearish scenarios to more than $7.50 under bullish conditions. Like corn, only the most bullish price scenarios project prices above those currently offered. FAPRI and USDA February projections suggest $5.60-$5.90 average prices for 2004 production. While the soybean market is expected to remain volatile, establishing price protection on some new crop soybean production appears to be a wise risk management strategy.

The next new crop production/price clues may come with the March 31 USDA Prospective Plantings Report. Following a dry late summer weather pattern, last year's harvest of excellent corn yields and disappointing soybean yields suggested producers would favor planting corn over soybeans in 2004. While prices for both crops have increased, soybean prices near $10 may have caused many farmers to have second thoughts about which to plant. It is possible that planted acreage of both corn and soybeans will increase due to a reduction in wheat and other crops along with increased double crop planting.

Early estimates of corn plantings range from about 79 to 82 million acres and soybeans from 72 to near 75 million acres. While some predictions are outside of these ranges, most seem to expect nearly 80 million corn acres and soybean acreage above 74 million. With trendline yields, these acreages appear to result in prices near FAPRI and USDA estimates. Watch this report closely as the market is likely to react to any surprises in this 2004 production indicator.