Several factors combined to bomb soybean prices to 12-year lows during February. First is the potential for another huge crop in South America with news that Argentina may harvest its largest soybean crop ever. Second is the falling value of the Brazilian real, which is down over 40% since the first of the year. Third is slow export demand as most global buyers wait for cheap South American soybeans to arrive. Fourth is the slow U.S. crush rate as processors reduce their activity due to poor crush margins.

As if those factors aren't enough, it now appears that U.S. farmers will increase planted soybean acreage in 1999. This will add to already burdensome supplies. As we enter early March, we feel the first four negative factors are already fully reflected in the current price of soybeans. Whether prices continue lower or finally bottom will mainly be a function of U.S. planted acreage and the yield potential of the 1999 U.S. crop.

We are currently projecting U.S. planted soybean acreage at 73.5 million or about 1.1% more than last year. If the normal 1.7% of those acres are abandoned and a trend-line yield of 39.7 bu/acre is harvested, a whopping crop of 2.868 billion bushels would hit the market next fall.

The chart (see printed article) shows the soybean/corn price ratio from 1968 through 1998. Current new-crop futures prices have brought the ratio down to about 2.18. This would usually begin to shift soybean acres to corn. The ratio usually bottoms out at about 1.8 to 2.1, with the exception occurring in 1996, when corn went to over $5/bu.

Almost every time in the last 20 years that the ratio has dropped to less than 2 it has soared to more than 3 within 18 months. In other words, price works, and producers will usually plant fewer soybeans and more corn. When that happens, soybean prices come bouncing back.

That may work again within the next 18 months, but planting intentions are likely to be different in 1999.

When prices are this low, why are producers planning to plant more acres?

Most are deciding to plant based on government loan rates, not new-crop futures prices or cash bids. The national loan rate for soybeans is $5.26/bu; for corn, $1.89/bu. These prices offer growers a new-crop ratio of 2.78 and create an incentive to plant more soybeans this spring. In addition, many cash-strapped farmers will choose soybeans over corn because of lower input costs.

What to watch for: Most Midwestern farmers have already made most of their buying decisions. Any big acreage swings will occur in the fringe areas of the Corn Belt. If December corn rallies back to at least $2.50 prior to or during the spring planting season, the market may signal farmers that more corn acres are needed, and the big increase in soybeans won't happen.

If new-crop corn and soybean prices stay depressed through planting, look for total planted row-crop acreage to drop by 1-3 million acres. Many farmers in marginal areas will summer fallow more acres, especially in the High Plains. Others will plant cover crops that provide forage for cattle later in the year.

With new-crop prices at or below the loan in most areas, downside financial risk is minimal at this time.

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. Or call 800-345-7692.