“Until now, I've always been able to buy 2 gal. of gas when I sold a bushel of corn,” says an irritated farmer in early August at Farm Fest in Southwest Minnesota. “In 1972, before commodity prices started higher, I could usually sell a bushel of soybeans and buy 8 gal. of gas.”
This is a simple but great illustration of how far soybean prices have fallen, and how expensive energy prices have become for farmers. This also demonstrates why ethanol and biodiesel production continues to soar.
The International Soybean Price chart shows the value of U.S. soybeans with the current dollar value factored in. This chart shows the price of soybeans that our foreign buyers are paying when they purchase soybeans using their currency. The highest international price in the last 20 years came in August of 1983 when prices peaked at just over $11.50/bu. This chart also shows a triple bottom at $4.33, with prices testing that low level three times in the last 20 years.
The chart shows major lows in international prices coming in about every seven years with a major low due this fall. The current international price of soybeans is down to $4.65, or within 30¢/bu. of the lowest prices posted since commodity prices started to move higher in 1972. This doesn't indicate that prices can't move lower into the glut harvest. However, look for foreign and domestic end users to be aggressive scale-down buyers at this bargain basement price level.
I can list four major reasons why soybean prices are likely to turn much higher in 2007.
Export demand continues to soar. With China's economy continuing to grow at over 10% annualy, meat consumption is growing, as is feed grain and soybean meal demand. With China's huge balance of payment surplus, they're in a position to pay cash for all their feed needs. Look for USDA to increase projected exports again in the January report.
U.S. soybean processors have excellent crush margins of 50-65¢/bu. through the first two quarters of 2007. With growing demand for soybean meal, and the huge potential of soybean oil as a biofuel, look for several more processing plants to be built in the next 12-18 months.
Brazilian soybean production is likely to fall in 2007. The early projections are for a 5-8% drop in planted acreage. Input purchases are off by as much as 40% in many of the key production states. The amount of soybean exports from that key competitor is likely to drop again in 2007.
U.S. soybean acreage is likely to drop by 1-3 million acres in 2007 as farmers shift to more corn and fewer soybeans throughout the central Corn Belt. The rally to over $3/bu. in December 2007 Chicago Board of Trade (CBOT) corn futures and to over $3.30 in December 2008 CBOT corn futures has many farmers making permanent plans to go to 75% corn or, in some cases, 100% corn each year in the future.
What To Do
If a soybean Loan Deficiency Payment (LDP) is available this fall, grab it. The market is likely to post an impressive post-harvest rally in the cash market. Stay with a disciplined cash marketing plan for your 2006 crop as weather scares in South America are likely to offer great selling opportunities in the first and second quarter of next year.
On Fridays, we will post the international price of corn, soybeans and wheat at www.kluisnews.com.
Alan Kluis is the president of Northland Commodities LLC, based in the Minneapolis Grain Exchange, Minneapolis, MN. You can contact him at firstname.lastname@example.org or call toll free 888-345-2855.