A 3-billion bushel soybean crop is needed for U.S. crush and export markets.
In the early 1970s, the challenge for U.S. soybean farmers was to grow a 2-billion bushel crop. That goal was set as exports surged and farmers were challenged to grow more food to feed a hungry world.
With the large surpluses and low prices of the last three years, more farmers have been challenged to capture the largest loan deficiency payment (LDP) possible.
Global soybean usage has increased — but so has South American production. As we look ahead at the next decade, odds are good that U.S. soybean farmers will be challenged to grow a 3-billion bushel crop — two billion for U.S. soybean processors and 1 billion for export.
The U.S. soybean crush chart shows increased crush figures since 1983. High prices in 1983 dropped crush to lower levels in 1984 and 1985. The same pattern was true in 1988 when $10-plus soybeans resulted in lower crush levels in 1989 and 1990.
The Asian financial crisis dropped global soybean usage while the U.S. soybean crush rose in 1997. Global usage was less than projected in 1998, while domestic crush has continued higher. NorthStar projects that crush will hit 1.635 billion bushels next year.
Since 1990, the U.S. soybean crush pace has increased by a 4-5% annualized rate. At this pace, domestic crush should top 2 billion bushels by 2005.
In recent Census Crush reports, record soybean crush has been reported regularly. The great news is not only increased crush, but also record domestic demand. Demand for U.S. meal is up by 4.7% as U.S. hog and broiler numbers continue to increase.
The current projection is for domestic soybean oil usage to hit 16.45 million pounds this year. The slowing U.S. economy has reduced high-end restaurant sales while fast-food restaurants continue to report increased sales. The good news for soybean growers is that increased fast-food demand not only increases meat demand, it also increases soybean oil usage.
The most recent USDA estimates appear to have understated the U.S. soybean crush by 10 million bushels and soybean exports by 20-30 million bushels. This will reduce this year's carryout, and if this increased usage trend continues, usage will be higher than projected again next year.
Demand remains strong, and unless the U.S. or Asia experiences an extreme economic slowdown, odds are good that we'll consume a 3-billion bushel crop the first year that it's grown.
The monthly soybean chart shows a major price decline from the 1997 high of $9 to the July 2000 low of $4.01. Since that major low, the chart shows a pattern of higher highs and higher lows. Current fundamentals are as negative as I have ever seen them, yet prices don't stay lower after negative fundamental reports. This price action and the long-term trend suggest higher soybean prices ahead. The early March 2001 low held well above the harvest 2000 low, which is a positive technical signal.
In summary, don't bank on a large LDP again this fall. Following the market setback into early March, futures have rallied on negative news as a major secondary low appears to have been put in.
Keep offers in above the market to hedge part of your soybean crop when fall or January 2002 bids net a price that's higher than your county loan. Seasonal odds and market cycles suggest higher prices into late May.
Alan Kluis is president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, P.O. Box 15086, Minneapolis, MN 55415-0086, call 800-345-7692 or visit www.northstarcommodity.com.