The lows in soybeans during August should be the lowest prices you'll see for years to come.
Soybean prices have hit bottom and started back up.
As all soybean growers know, prices have been much too low for much too long. After coming off a peak of well over $8 in 1997, prices actually hit their lows in July 1999 at just slightly over $4/bu. In the last couple of months, many felt as though we would challenge that level and possibly even make new lows.
Fear not. The odds of that occurring are slim.
Someone once said that the only thing we've ever learned from history is that we learn nothing from history. That's probably very true. But let's not forget:
- Extremely high prices ultimately bring extremely low prices and extremely low prices ultimately bring extremely high prices.
- Markets peak on bullish news and bottom on bearish news.
- Markets change and prices change, but people don't. Most emotional decisions are made at major tops and major bottoms.
With that said, the charts at right tell a very important story. First, the bottom chart shows the price of soybeans in U.S. dollars going back to 1970. Clearly, soybean prices during the month of August were challenging the lows established over the last 30 years. As you can see, soybeans don't spend much time under $5/bu nor do they spend much time above $8/bu.
But now let's take a look at soybean prices through the eyes of a Japanese buyer (top chart). Due to the strength of the yen, as well as the weakness of soybean prices themselves, soybean prices in the Asian market are at an all-time low. This stuff is cheap! Way too cheap!
It's also interesting to point out that the length of major bear markets encompasses some very obvious similarities. For example, consider the following:
- From the peak in 1980 at about $9.50, soybeans declined to $5.20, the bear move lasting 23 months. From the peak in 1983 to the trough in 1986, the bear market lasted 36 months. From the peak in 1988 at over $10.50, the bear market lasted 38 months, bottoming at $5.20 in 1991.
- This bull market peaked in 1997 at nearly $9/bu, and this August was 39 months down.
It seems to take about the same amount of time in each major bear market to convince the diehard bulls that the trend is down. About the time that everyone knows it, the move is over.
Now the exciting part. After the bottom in 1982, 11 months later the market had rallied from $5.20 to $9.20. In 1986, 21 months after trading at $4.80/bu, soybeans hit $10.80/bu. From the low established in 1991 at $5.20, it took the market a whopping 69 months but it eventually rallied to slightly under $9/bu.
The fundamentals are bearish, with near-record carryovers - but everyone already knows that. That's why we've had a bear market for the last 39 months.
Known news is no news. Prices prior to harvest were trading at a significant discount to loan rate. All of this adds up to one thing - the soybean market has made the lowest lows you're going to see for a very long time.
What does this mean long-term to prices? Frankly, it's too early to tell. By the time you read this, I anticipate prices will have already recovered significantly. But let me give you a few of my thoughts on marketing this year's crop:
1) It's still going to be difficult for soybeans to average much above $5/bu, basis Central Illinois, because of the large carryover. That means anything above $5.50 should be a good sale.
2) There was a gap left in the November soybean charts at $5.58 back on May 24. With any weather problems during harvest, November beans have a reasonable shot at going for that gap.
3) With that said, if November beans hit $5.58, let someone else own at least half of your soybean crop. If nearby futures trade above $6 between now and January, let someone else own the other half and start concentrating on next year's marketing.
4) If none of the above occurs, wait until after the first of the year. History is on your side and low prices will lead to higher prices.