EDITOR’S NOTE – Soybeans stage their own rally

By Carroll Smith

March2013ssThis month, two well respected economists, Dr. Mark Welch with the Texas A&M AgriLife Extension Service, and Dr. Kurt Guidry with LSU AgCenter, shared their thoughts about the soybean market. Following are their comments:

Dr. Mark Welch:

Soybeans seem to be marching to their own drummer. Compared to corn, production did not suffer as much last year, and world stocks of soybeans are not critically tight, which explains some of why soybean prices broke so hard ahead of corn at the end of last year’s growing season.

Now with concern over growing conditions in Argentina and with strong export demand, soybeans are staging a rally of their own. Corn exports have been flat since last June. The price ratio of November soybeans to December corn is 2.28, about normal for this time of year. A ratio of 2.5 would provide a strong economic signal to shift corn acres to beans; 2.0, and beans would likely shift to corn. So the near term focus is on South America growing conditions.

Dr. Kurt Guidry:

While large increases in production are expected for both Brazil and Argentina as they complete harvest over the next couple of months, recent weather concerns will likely temporarily delay those supplies from being available to the world market. Any delays in South American supplies will likely extend the current strong pace of U.S. soybean demand and could force USDA to make this already tight stock situation even tighter.

Short term, prices should continue to be supported by the strong pace of demand and the weather concerns impacting South America. Also, given the tight domestic stock situation here in the United States, prices would be expected to remain strong until the market has a better idea of the size of the 2013 U.S. crop. With the strength currently being seen in prices and with a positive more long-term outlook, we would normally expect a large increase in acres. However, strong feed grain prices and better profitability projections for corn should limit increases seen in soybean acres in 2013.

With acres around the 78-million-acre level in 2013, a return to normal yields could put some downward pressure on prices later in 2013. However, examining the U.S. drought monitor index reveals that automatically penciling in average yields for 2013 might be premature. Several areas of the Midwest continue to experience drought-type conditions and long-range forecasts call for normal or below normal precipitation for those regions through May 2013.

Given the current outlook, a projected price range for soybeans for the 2013 crop and the 2013/14 marketing year is $11.50 to $13.50 per bushel. While new crop prices are expected to move primarily sideways in a range from the mid $12 to mid-to-upper $13 per bushel in the short term, the longer term projection will certainly be dependent on the size of the 2013 crop.

If we get the 78 million acres planted, and if we have a return to normal or average yields in 2013, prices would likely be on the lower end of the projected range. Even with a large increase in production, growing world soybean demand is expected to prevent prices from falling significantly. If concerns over dry conditions in the Midwest persist through the growing season, prices would be expected to be on the upper end of the price projection range.

Soybean South would like to thank Drs. Welch and Guidry for contributing these market updates.
If you have comments, send them to Corn South, 1010 June Road, Suite 102, Memphis, Tenn., 38119. You may also call (800) 888-9784 or contact Lia Guthrie at lguthrie@onegrower.com or Carroll Smith at csmith@onegrower.com.

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