farmgate: Take Advantage Of Prices Offered By The Soybean Market
21 days. At the rate the US uses soybeans, at the end of the marketing year next August a 21 day supply will be all that exists. When the Soviet Union bought US wheat in 1972, we were left with a similar amount of wheat. In 1973 when there was an international run on US soybeans, a 17 day supply was left when an embargo was put in place. The shortage of supply has driven prices well above $13 per bushel, but how high will the bean market go?
USDA’s estimate of the meager soybean carryout for next August pushed market prices higher, but Purdue economist Chris Hurt believes there is still room for the market to travel upward. Just like in 1973, foreign buyers have continued to purchase, thanks in part to the currency exchange rate that gives them an advantage. Current export commitments are ahead of last year and USDA says they need to be cut by 11%. Chinese purchases are up 14% from last year and Hurt says the Chinese would buy more if there is any weather threat to the South American crop.
The tight supplies will continue, even with an 8% increase in acreage that the market expects, which means high prices will remain into 2009. the $13 level has been a consolidation point for many buyers, who are waiting for prices to edge higher where they can feel comfortable again. But with such uncharted territory, what signals should be obeyed by farmers who may still have unsold soybeans? Hurt says:
1) Watch weekly export sales, since buyers may continue at an orderly pace or begin panic buying.
2) Watch for signals that soybean meal use is being cut back by the livestock industry.
3) Watch for weather indicators that may hint about the size of the South American crop.
Hurt says many years will record the market highs in the March to May time period, and this year may not be any different. He is urging farmers to become 40% sold now, and to reach 75-80% sold by planting time in May. Absent the desire to unload large quantities, Hurt suggests small weekly to daily sales to spread out the risk or use an elevator pricing program that sets prices at the average price over a late winter or early spring window.
Those strategies do not require prediction of a top in the market, which Missouri’s Melvin Brees also says he has no idea where and when it will happen. Brees doubts that market demand can be sustained at current prices, and that is already beginning to show up in the soybean oil market.
So what should be done about selling in Brees’ mind? He says while selling decisions are not easy, marketing at today’s prices is quite profitable, despite the volatility. He also advocates incremental sales, as long as you do not run out of inventory to sell before the market reaches its higher areas. At that point, your soybeans can be re-owned on paper and marketed again with either options or futures, and that might require significant margin requirements. Brees also suggests the use of price traps, which is a signal to an elevator that you want to sell, should prices fall to a certain level. Those benchmarks are set below the market and are moved up as the market moves up.
Summary:
The soybean marketing is climbing with uncertainty about how high it will go, and farmers with unsold soybean may want to work on a calendar, with sales over the March to May period when prices would expect to be at their highest for the year. Small incremental sales will also help capture high prices, and price traps willinsulate against any severe price moves.
Posted by Stu Ellis on January 30, 2008 11:00 AM to farmgate