Are soybean futures at a major long-term low, or will prices slide still lower into the spring of 1999?

The acreage and yield of the South American crop are the key fundamentals that will determine soybean price action during the next three to six months. If any big swing occurs, it likely will be in Brazil.

Current estimates show South American acreage to be unchanged or down slightly. Soybean production there in 1999 is a function of three key factors: weather, price and Brazil's financial condition.

First, the weather has been cool and wet in Rio Grande do Sul and hot and dry in Mato Grasso. Brazilian meteorologists are forecasting a hot, dry growing season for Brazilian farmers.

Second, the early price ratio of corn to soybeans favored planting more corn. Early indications are that farmers in southern Brazil will plant more corn and rice and less soybeans. This could result in a soybean acreage reduction of 2-4% in southern Brazil.

Third, high interest rates and the devaluation of the real (Brazilian currency) have reduced operating money for growers. Initially, they were promised short-term operating loans at 5-8%. Later, when the government attempted to hold up the international value of the real, short-term interest rates jumped to 49%. The best commercial borrowers were able to secure loans at 4-6% per month.

With cash and new-crop soybean bids below growers' cost of production, seed companies and farm co-ops have not been able to provide fully adequate funds or credit for inputs.

The net result of these factors is difficult to forecast. Early indications are that a large percentage of Brazilian soybean farmers will cut back on herbicide, fertilizer and insecticide purchases this year. In some areas, a lot of bin-run seed will be planted.

If weather cooperates, a normal crop of 1-1.2 billion bushels may be produced, with a total South American crop of about 2 billion bushels. However, if any weather, disease or insect problems develop, Brazilian production could easily decline by 10% or more.

The trade is building in another huge crop in South America and any hint of weather problems will result in a rally in soybean futures.