| OU 320 | January 14, 1997 |
The current soybean market environment is such that prices for the 1996 crop have shown some relative weakness. March '97 futures prices for the recently harvested (1996) crop are $6.96 ($/bu) at this writing. Also, futures prices for the 1997 crop are currently trading $6.65 on the November, 1997 contract. This ($6.65) is an average price for an average U.S. crop (in 1989-95 time period) but may be below what one would expect the value of this crop should ultimately be given the projected carry-in to 1997 supplies.
U.S. Soybean production in 1996 is currently estimated at an enormous 2.35 billion bushels which is the second largest crop since 1982 but slightly below the record U.S. production in 1994 (Table 1). The called U.S. yield is 37.9 bushels per acre for 1996. It is the second highest on record but 3.3 bushels per acre below the record set in 1994. 1996 carry-in stocks were a below average 183 million bushels. With 63.4 million acres harvested the 1996 total supplies are at 2.535 billion bushels. In essence, it was the high 1996 yield and subsequent near-record production that kept soybean prices in check. None-the-less, we experienced cash contract prices for 1996 SC beans over $8.00 twice prior to harvest of this crop. These were obtainable and, with clear hindsight, we can say we should have taken them.
Table 1. U.S. and S.C. Soybean Harvested Acres, Yield and Production,
1994-96 Marketing Years. 1/2/
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Item Units Year U.S. So. Carolina
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Acres Harvested Thous. Ac. 1994 60,859 580
" 1995 61,624 530
" 1996 63,400 540
Yield Bu/Ac 1994 41.4 27
" 1995 35.3 24
" 1996 37.9 26
Production Thous. Bu. 1994 2,156,694 15,660
" 1995 2,151,834 12,720
" 1996 2,403,000 14,040
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1/ U.S. information from USDA-ERS data;
2/ S.C. information from USDA-NASS and S.C. Agricultural Statistics Service.
In South Carolina, soybean acreage harvested was set at 540,000 acres. This
was up 10,000 acres from the '95 crop but well below the 1989-93 average of
706,000. This general trend of lower soybean acreage had been attributed to
soybean land being converted for the expansion of cotton acreage. Perhaps
this has abated.
Growing conditions led to a near-record state yield of 26 bushels per acre. This was only one bushel lower than the previous record of 27 bushels and is the second best we've produced. South Carolina's production was set at 14,040 million bushels, up 10 percent from 1995's production.
Both domestic utilization and exports are projected to absorb a great deal of this crop (Table 2). On the domestic side, "Seed & Crush" usage is projected to take nearly 1.5 billion bushels in the 1996-97 market year. High domestic demand for soybean meal, fueled by projected increases in hog and poultry numbers will assist disappearance.
Export prospects for U.S. soybeans continue strong. Foreign crush margins are also wide at present. Exports will be strong, in part, because the U.S. is the primary exporter of whole beans globally. Exports are projected at 850 million bushels in 1996-97. This is well over the recent average (1989-95) export performance of 702 million bushels.
Table 2. U.S. Soybean Supply and Use, 1990-96 and 1997 projection. 1/
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Item/Mkt Year Units 1994 1995 1996 1997
Projected
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Acres Harv. Mill Ac 60.9 61.6 63.4 61
Yield Bu/Ac 41.4 35.3 37.9 35
Carry-In Mill Bu 209 335 183 195
Production Mill Bu 2,517 2,177 2,346 2,135
U.S. SUPPLY Mill Bu 2,731 2,516 2,535 2,330
U.S. Crush Mill Bu 1,405 1,370 1,375
Exports Mill Bu 838 851 850
UTILIZATION Mill Bu 2,396 2,333 2,340 2,200
U.S. END STOCKS Mill Bu 335 183 195 130
U.S. FARM PRICE $/Bu $5.48 $6.77 $6.65 $7.50+ ?
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1/ US numbers from USDA Estimate December 12, 1996;
2/ Marketing year 1996-97 estimates are projections for September 1, 1996
to August 31, 1997.
With 1996 utilization projected at a large 2.34 billion bushels, ending
stocks are projected at an tight 195 million bushels. This is 27 percent less
than the 1989-95 average of 266 Mb and provides a good start for the 1997
crop.
Should you sell any unsold 96 crop now or hold out for higher prices? Current prices reflect a market consensus that has accounted for this year's high production and disappearance. There is a chance for a spring rally due to reports of adverse South American weather affecting their crop. There is also a chance for another May-June U.S. weather scare. It wouldn't take a dramatic weather scare to send prices higher given these stock levels. However, I'd not be holding beans in my bin now. I'd rather have them sold and replaced with a call option purchase on the July, 1997 futures. Why July? The July option time period covers the potential Latin and/or US weather scare periods. Why an option? Simple; less down side risk than beans in the bin.
As stated above, weather scares (here or in Latin America) could strengthen 1996 crop prices and lend strong support to 1997 crop prices. The size of the 1997 crop will be the primary market mover as we move from planting to harvest. A lot of land shifted to corn last year and I assume more will move next year. This alone could greatly affect soybean crop size. My guess at the size of the 1997 U.S. crop is that it will fall in the 2.0 to 2.2 billion bushel range. This production level is set assuming the following:
1 . U.S. harvested acres at 61 million acres (ma) in 1997.
This is based on a land lost to corn production nationally;
2 . U.S. average yield set at 35 bushels per acre (bu/ac).
This is a return to trend yields (1989-95 average was
35.2 bushels) and assumes that higher- (or lower-) than-trend
yields tend to return closer to trend in subsequent years.
Needless-to-say, with the tight stocks that we are currently projecting
and market conditions as they are, there is potential for price pressures
building. However, based on recent history, current prices don't appear high
enough to ration a potentially short 1997 crop. Typically, I'd urge a
conservative "price some now" approach for some of the 1997 crop. It might
be wise not to pass up current prices for some of next year's crop. But,
based on the numbers present & the potential for adverse weather scares -- I'd
wait awhile. Next year's crop may (hopefully) be priced later, perhaps this
spring, at higher levels.
