May 21, 2001
SOYBEAN PRICE PROSPECTS
Soybean prices have made a modest
recovery since establishing new contract lows on April 24 and
25. The recovery in cash prices and nearby futures, however, has
been larger than the recovery in new crop prices. The average
cash price of soybeans in central Illinois established a marketing
year low (on an overnight basis) on April 25. At $4.145, that
low was $.83 below the marketing year high established on December
19, 2000. The overnight cash price recovered to $4.515 by May
17, an increase of $.37. On a close-to-close basis, July futures
increased by $.285 from April 25 to May 17. The basis strengthened
by $.085 during that three and one-half week period. In contrast,
November 2001 futures advanced by about $.18 during the same time
The advance in prices since late
April has been led by soybean meal prices. The average cash price
of 48 percent meal at Decatur, Illinois has risen by $14 per ton
during that time, while soybean oil prices have been about unchanged.
Meal prices have been supported by a high rate of consumption,
both in the domestic market and the export market. Domestic consumption
has been surprisingly strong given the modest increase in livestock
numbers and the continued high price of meal in relation to feed
grain prices. Meal exports have been supported by the continued
ban on meat and bone meal feeding in the European Union. The slow
down in the rate of domestic crush during April also tightened
meal supplies somewhat. Chinese buying of U.S. soybeans have slowed,
but total imports by China continue to be large.
Longer term, there are indications
that the pace of world soybean consumption will remain large.
The sharp decline in rapeseed and sunflower production should
be supportive for soybean meal demand. A return to more normal
palm oil yields during the year ahead might give some long-awaited
support to soybean oil consumption. From the supply side, it is
generally believed that China will make a modest reduction in
soybean production during the year ahead. Of most importance,
however, will be the size of the 2002 South American crop of soybeans.
The rapid rise in production and recent record crops there have
been thoroughly discussed. South American soybean acreage has
increased by about 11 percent over the past two years, with the
largest increase (nearly 21 percent) in Argentina. The market
will be eager to see if that expansion is slowed next year, assuming
prices remain low into the last quarter of the calendar year.
Average soybean yields in South America have been large since
1997 and were especially large in 2000. A return to "normal"
yields would result in some decline in production even with a
modest increase in acreage.
While a friendly picture for soybean
consumption seems to be unfolding, a continued price increase
in the near term will likely have to be driven by supply concerns.
More specifically, the potential size of the 2001 U.S. crop will
be the dominant price factor for the next three months. At least
one prominent private analyst believes that planted acreage of
soybeans this year will exceed March intentions by several hundred
thousand acres. History supports an increase from March intentions,
as does delayed corn and spring wheat planting in a few areas
of excessive moisture. In addition, some abandoned acres of winter
wheat may be seeded to soybeans. Finally, there may have been
some under-counting of total crop land acres in the March Prospective
Plantings report, opening the door for more soybean acres to be
reported later. The USDA will release its Acreage report on June
While acreage will make some difference
in the size of the 2001 crop, average yields could be more important
in determining the final size of the crop. A difference of a million
acres in area harvested results in about a 40 million bushel change
in crop size, at trend yields. A 2 bushel difference in the national
average yield would produce a 150 million bushel difference in
crop size. Planting progress is running ahead of the normal pace,
particularly in the eastern corn belt and generally adequate moisture
levels exist for the early part of the growing season. The National
Weather Service outlook through August shows potential for normal
precipitation in most growing areas. The exceptions include part
of the southern and far eastern growing areas. In short, there
is little reason for concerns about the 2001 crop at this early
stage of the growing season.
The recent rally in soybean and
soybean meal prices will be difficult to sustain. The significant
strengthening of the basis offers an opportunity to move old crop
supplies. New crop sales still do not appear attractive, with
prices buried well below the loan rate.
University of Illinois