The 2007 U.S. soybean crop was down 19%. Buyers may be bidding for acres. China needs a bigger chunk of it. And its inputs are lower than corn.

So when do you start marketing the 2008 soybean crop?

Do you lock in $10.50/bu. or $11? Or are you bullish enough to wait on $12? Orville Williams, a Montezuma, KS, corn, soybean, wheat and sorghum grower and wheat seed producer, is leaning to the upside.

“I believe we'll get $11, or at least $10.75 on new-crop futures, which should net $10.25-10.50 cash,” says Williams, who is still uncertain as to how many soybeans he'll plant for 2008, with corn and wheat prices what they are.

HE'S LIKE MANY growers across major soybean and corn production areas. Corn acres went up for 2007, thanks to $4/bu. prices caused by the demands of ethanol production. Now it's the mighty bean's turn to see more acres, according to numerous forecasters.

Will the increase in acres soften the soybean market or will demand offset an increase in production and push prices upward? Melvin Brees, University of Missouri Extension economist, is among those who can't say one way or another, even when history says to sell.

“It's usually hard to be wrong selling soybeans at prices above $9,” says Brees. “But prices have been in an uptrend since early August, and the strong trend gives few hints on any upside limits.”

Chris Hurt, Purdue University Extension economist, advises growers to keep forward pricing levels moderate “until we move a bit later into this winter. Look for a South American weather scare, for rapid Chinese buying or for oil prices moving higher yet to trigger the next upward surge,” he says.

He contends that the greatest price strength will come in the 2007-2008 marketing year contracts. However, 2008-2009 contracts will move in the direction of the bullish market, but not nearly as much.

“The tightening soybean market will be characterized by the nearby futures moving up faster than deferreds (futures contracts),” says Hurt. “Futures may invert such that the March futures are higher than the May futures. If the May futures move up $1, the November 2008 (new crop) may only move up by 50¢/bu.

“This would put November 2008 into the $10.75-plus range - and that is very reasonable to do some forward pricing,” he says.

WILLIAMS ACTUALLY skipped soybean production in 2007, adding more corn acres to his operation. But he still profited from the 2007 price rally by selling part of his 2006 crop stored on-farm. “I sold much of the 2006 soybeans on Nov. 1 (2007) for $9.80,” he says. His nearly 200,000 bu. of on-farm storage made it possible. It also makes him comfortable with early marketing of a portion of his 2008 crop for delivery after harvest, depending on prices.

“I see making sales through futures and/or options to protect a price because I can't be sure which way prices will go,” says Williams, who is following CBOT soybean contracts closely, always tempted to pull the trigger with prices near record levels.

Like many growers, he was happy to see futures prices in the $9 range in late summer 2007, even though they had been a little higher earlier in the year. Then they started back up, breaking through the $9.50 level in mid-September.

The November 2008 new-crop contract was a prime example of bulls gone wild. Prices pushed $10 in October, topped it in early November, then blew through $10.50 before Thanksgiving.

WILLIAMS WAS CONSIDERING out-of-the-money put options in the $10 range, leaving his upside open. Straight futures hedges were also on his mind in the $10.50 range. He was looking at call options above that level to aid in covering margin calls and to prevent losses during a rally in the volatile market.

Those prices would surpass USDA's projected average 2008 soybean prices of $8.50-9.50. Brees says that in Missouri (and most other soybean production areas) cash bids are in the upper one-half of the USDA range.

In November, prices were moving opposite of the normal seasonal trend of prices facing downward pressure into a winter low. However, Brees warns against waiting too long to get a portion of your soybean crop marketed.

“At these price levels, there could be a significant and rapid downside price decline if the soybean price uptrend is broken,” he says, pointing out that “cash prices above $9 are profitable prices.”

Brees adds that growers should expect stronger basis levels early in the year, after harvesttime basis lows made storing beans a good strategy. “Projections for tight ending stocks suggest that basis should eventually strengthen and provide support to cash prices,” he says.

He says shooting for the high side is OK, “but don't let $9-plus beans get away on the downside if prices reverse quickly.

“This can be accomplished by having two price targets,” he says, “the upside price target that you want and the downside price target (or trap price) that triggers a sale if the high target is not reached and prices turn down.”

Williams is among many growers who regularly face a weak basis outside the heart of the Corn Belt. However, with his on-farm storage, he can wait out low basis levels. He's also able to market his soybeans 180 miles away in Wichita.

“Truckers who haul in soybean meal from Wichita to regional feedyards are always looking for back-hauls,” says Williams. “They are eager for loads like soybeans, which can be delivered to elevators and terminals back in Wichita from southwest Kansas.”

Besides the benefits of crop rotation, Williams counts on soybeans to help manage his input costs. Since he only averages 18-20 in. of rainfall, he depends on irrigation to produce 220-bu. corn and 60-70-bu. beans. Corn will gross more per acre, but much less irrigation and other inputs are needed for beans.

For example, Williams says he can lock in corn at $4.50 bu., which generates a gross income of $990/acre for a 220-bu. crop. However, he'll spend from $115 to $155/acre on irrigation (15-20 in. of water), and another $105/acre on fertilizer. “Overall, I'll have about $600/acre in variable costs,” he says, not counting land costs and other expenses.

FOR SOYBEANS PRICED at $10.50/bu., a 60-bu. yield will gross about $630. However, his irrigation cost will run about one-third less - a savings of $45-60/acre, or more. Plus, there's little or no fertilizer cost.

“You have to wonder if selling $4-4.50 corn is enough to cover the expected increase in inputs,” says Williams, pointing to rising anhydrous ammonia prices.

“The inputs are much lower for soybeans. That's what can make them attractive as a replacement for corn acres,” he says.

He adds that since he grows certified and registered seed wheat, he uses soybeans as a rotational crop so he can get the wheat established earlier in the fall on some acres.

On acres that will be planted to corn or milo the next season, growing soybeans provides credit of nitrogen for these crops. Additionally, it helps break weed cycles.

No matter if he grows more or less soybeans, corn or wheat, good marketing is essential.

“This is the first time that I can remember where we are in a demand-driven market,” he says. “But you are risking more.

“You have to make good marketing decisions. If you make less than $3/bu. for corn or $6-7 for soybeans, you could be in trouble,” Williams says.