April 30, 2001
ARE SOYBEAN PRICES LOW ENOUGH?
Soybean prices have been under significant
and consistent pressure since the late summer of 1998. Since that
time, the average daily cash price of soybeans in central Illinois
has ranged from $3.875 (July 8, 1999) to $5.795 (November 30,
1998). The average cash price from August 1998 through April 2001
was $4.76 per bushel, nearly $.70 below the Commodity Credit Corporation
(CCC) loan rate in that area. The current cash price, at $4.19,
is near the lower end of the trading range over the past 33 months
and about $.80 below the highest price for the current marketing
year established on December 19, 2000. The price for harvest delivery
of the 2001 crop has slipped under $4.00.
The primary reason for low prices
over such a long period of time is consistently large supplies.
The size of the U.S. crop has been large since 1997, in a narrow
range of 2.654 to 2.77 billion bushels. South American production
has been large and trending higher since 1996-97. That crop totaled
1.432 billion bushels in 1995-96 and is currently estimated at
2.373 billion bushels for the 2000-01 crop year. That estimate
may get somewhat larger as harvest is completed. World production
of all major oilseeds has grown from about 260 million tons in
1995-96 to an estimated 307 million tons for the current year.
World palm oil production has increased by 22 percent in the last
The job of the soybean market has
been to price soybeans and soybean products at a level that would
prevent a build-up in stocks. That is, prices had to be low enough
that consecutive large crops would be consumed. In general, the
market has been successful in preventing a significant accumulation
of stocks. Current projections by the USDA indicate that the record
2000 U.S. soybean crop will be entirely consumed by September
1, 2001. The same scenario is projected for world consumption
and stocks. The record 2000-01 crop of 6.257 billion bushels is
expected to lead to only a 40 million bushel increase in ending
stocks. Those stocks would represent 16.5 percent of projected
annual soybean consumption, down from the stocks to use ratio
of 16.7 percent for the 1999-00 crop. The one minor exception
to the market clearing success of prices is the build-up in U.S.
soybean oil stocks. Those stocks are projected at 2.12 billion
pounds for October 1, 2001, up from 1.38 billion on October 1,
For the near term, it appears that
the pressure of large supplies will continue. The record South
American harvest is winding down and U.S. producers intend to
increase soybean plantings by more than two million acres. There
is some speculation that abandoned acreage of hard red winter
wheat could lead to an even larger increase in soybean acreage.
Generally, early season weather patterns do not give much indication
of potential U.S. average yield. Yields have been generally high
since 1996, but well below the record of 1994, as regional weather
problems have occurred. This year, the early focus on excessive
moisture in the upper midwest has been redirected to generally
dry conditions in parts of the eastern corn belt and southeastern
states. With a trend yield of nearly 40 bushels, the 2001 crop
would exceed 3 billion bushels, perhaps reaching 3.05 billion
if acreage exceeds March intentions. The average yield of the
past five years, 38 bushels, would produce a crop near 2.9 billion
bushels,still more than 100 million larger than the 2000 crop.
Barring yield reducing weather in
the U.S., the next opportunity for a supply reduction will come
with the 2001-02 crop in South America. If current low prices
persist, in combination with currency devaluation in Brazil, will
there be some reduction in soybean acreage? or, will average yields
decline from the recent high levels? A reduction in acreage may
not be a realistic expectation, but the rapid expansion in soybean
area in Argentina may cease, at least temporarily. There is little
basis for speculating about the average yield of the 2002 crop.
After the sharp decline in soybean
prices since the first of the year, the soybean market is showing
some signs of reaching at least a temporary low, with July futures
just above $4.20. Speculator profit taking on short positions
is likely to produce a bounce up in prices. Market fundamentals,
however, do not point to a significant recovery right away. The
key over the next four months will be the development of the U.S.
crop. In the meantime, there is some chance that nearby futures
could trade down to the 1999 low just above $4.00, if the crop
gets off to a good start.
University of Illinois