Are we in an oversupply situation that will keep soybean prices down for the next five to 10 years? Maybe I should quit while I still have some equity left."

That question and frustrated comment came from a farmer at an early January seminar. The debate about whether corn and bean prices will continue to go lower is argued every day at the Chicago Board of Trade.

Three short years ago, soybean futures climbed toward $9/bu, and corn futures rallied to over $5/bu just four years ago. That shows how much things can change in a short period.

As I evaluate where prices are likely to go, it's worthwhile to first review the U.S. fundamentals and price action for the last several years. Then I'll look at several supply-demand scenarios to evaluate what the upside potential and downside risks are for prices over the next three to 12 months.

The table below reviews the soybean supply-demand situation since 1997. In the spring of that year, soybean prices surged higher on strong demand and a short-term weather concern. That rallied nearby futures above $9/bu. The U.S. ended up with a good crop and prices fell to $6.20 that autumn. Ending stocks, which were as low as 7.6% of usage, jumped to over 13% by the following year. As U.S. soybean farmers harvested another good crop in 1998, soybean prices dropped from the January high of $6.90 to the fall low of $5.09.

Last year, huge global supplies and another good U.S. crop pushed ending stocks up to 395 million bushels for a 15% ending stocks ratio. Even though prices dropped to just over $4/bu, it's worthwhile to note that total usage is beginning to increase. U.S. and global demand continue to grow. The above table shows several supply-demand scenarios for soybeans during the 2000 growing season.

Keys to watch: First, we assume in this outlook that demand will stay strong unless soybean futures rally to $7 or higher. If that happens, it will greatly reduce global demand and increase alternative oilseed supplies. Second, pulling soybeans over $6 or $7/bu will take a major drought in a large portion of the U.S. this spring or summer. Third, if prices rally sharply higher, futures are not likely to stay at that higher price and profit level for more than 30-60 days.