BOTTOM LINE

What a difference a month makes, particularly if that month is August. I can't remember a year in my lifetime where a dry August resulted in such significant soybean loss.

All corn and soybean producers know that rain in July is important for corn and in August it's important for soybeans, but this year's results were dramatic in both crops.

If you're one of many farmers whose yields were less than half of July's expectations, it's easy to be less than logical when it comes to making marketing decisions for soybeans in the coming months. It's in times like this that it's good to remember some basic rules of thumb in marketing:

  • The function of price is to ration supply. If the market has too little supply, the function of price is to get high enough so that we do not run out. If we have too much, the function is to get the price low enough so that we use more.

  • What do we have a shortage of? The market is clearly saying that we have a shortage of $5 soybeans. But do we have a shortage of $7 soybeans? They may look the same, but in the market they're not. At some point all supply issues become discounted.

  • Don't forget that news will be most bullish at the top. In a supply-driven bull market (and that is what this market is), the supply news is the most well-known and most bullish during or right after harvest.

  • For the last two years, every soybean farmer has learned that the best marketing strategy is to do nothing, because soybeans have been peaking late in the summer. All we have learned is what has worked the last two years. Odds are reasonably high that just the opposite strategy will work this coming year.

  • Seasonalities in soybeans are strong. As the chart indicates, soybeans typically peak early or late in the marketing year. My guess is that this year's high will occur sometime in the September/November time frame.

My sympathy is with all soybean producers this year. I've never seen a year like it and hope never to see another one again. But if history is to repeat itself, this is going to be a year to be an aggressive forward seller of next year's soybeans. It's going to take a lot of nerve to do it — but at least don't hold on to your old crop.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.

Long-Term Impact

What most concerns me is the resulting long-term negative impact of high soybean prices now. How can this bull move be negative to soybeans producers? Here's why:

  1. Supplies will be rationed early. Prices will get high enough that end users will start looking for substitute oils and importers of U.S. soybeans will start looking elsewhere for other products. Usage will start to trail off dramatically in the months ahead.

  2. Planted soybean acres in Brazil will shoot dramatically higher. Keep in mind that this bull market in soybeans is happening during the planting season in Brazil.

  3. Marketing mistakes will be made in the opposite direction this coming year. In the last two years it has paid to store beans right to year-end and to do no forward contracting. A large majority of farmers who have forward contracted soybeans in the last two years have “learned their lessons” and will never forward contract beans again. Guess what? This is going to be the year to forward contract beans.