Now that USDA is forecasting huge corn plantings this year, what can we expect from soybean prices?
Several weeks ago, market analyst Richard Brock projected that if 70 million acres were planted to soybeans in the United States, carryover could drop from 568 million bushels to 400 million bushels and the average farm price would be around $7 a bushel.
Brock said at 68 million planted acres of soybeans, and normal yields of around 39 bushels, “we have a carryover of 100 million to 200 million bushels, and (there's no telling how high beans will go). I'm not predicting anything, but watch this acreage. If it goes under 68 million acres, the market (could take off).”
On March 30 USDA forecast that U.S. soybean producers intend to plant 67.1 million acres in 2007, which is down 11 percent from last year.
The soybean market did move sharply higher after USDA's acreage report was published, lost some ground, then started to regain momentum. Prices were still hanging short of $8 at the time of this writing. Reliable information on planted acres for corn and soybeans is still a few weeks away.
In the short term, it seems that for every bullish scenario pushing soybean prices, there's a bearish one weighing on them. For example, we're bearish because soybeans stocks are at very high levels, but bullish because China has an unbelievable appetite for them.
Longer term, there is a potential record crop coming off in South America and the corresponding idea that prices must move lower to compete with that crop.
“But if we get the U.S. planted acreage in beans down to a very low level, by the end of the summer, we could blow the top off the bean market,” Brock said. “There is more potential on the upside in soybeans longer term than there is for corn.
“Right now, we have such a huge increasing demand base for soybeans and I don't see an end in sight. One thing worries me a little bit, though. Biodiesel plants that make money are the ones that are running with animal fat.”
Brock feels that one day, although the change will be gradual, the United States “is going to become the world's producer of corn and South America is going to become the world's producer of soybeans. We're making that transition whether we like it or not.”
Also look for cotton prices to get stronger this year as Mid-South and Southeast cotton producers shift acreage to take advantage of better economics for corn, Brock says.
“If you asked me what I would buy, I would buy cotton. The cotton market has made a long-term bottom. Of course, that's why nobody has planted it this year. The crop this year is corn.”