Urbana, Illinois
January 18, 2005If the
South American soybean crop continues to make good progress,
soybean prices may come under additional pressure,
said a University of
Illinois Extension
marketing specialist.
“Cash prices will likely
decline below the Commodity Credit Corporation (CCC) loan rate
and there is an outside chance they could challenge the October
2004 lows,” said Darrel Good. “Uncertainty about the magnitude
of U.S. soybean acreage in 2005 and the potential impact of
soybean rust, along with normal weather uncertainty for the 2005
growing season, will provide some underlying support to prices
and may contribute to more price volatility from April forward.”
Good’s comments came as he reviewed soybean prices which
declines sharply from the spring to the fall of 2004 as the
market made the transition from shortage to abundance. To date,
however, prices have not declined to the extreme lows expected
to occur as a result of the surplus generated by the record crop
of 2004.
March 2005 soybean futures declined to $5.10 in early November
and the average overnight spot cash bid in central Illinois
reached a low of $4.80 on Oct. 13.
“That low is well above the lows reached in the 1998-99 through
2001-02 marketing years when supplies were less burdensome than
during the current marketing year,” said Good. “Lows in those
four years ranged from $3.871/2 to $4.291/2 per bushel. Futures
prices recovered quickly after harvest, even as the production
and carryover projections increased.
“March 2005 futures traded to the $5.60 level in late November
and again in mid-December. The ash price of soybeans in central
Illinois traded to a high of $5.151/2 on Nov. 23 and again on
Dec. 27 as basis strengthened significantly. The cash price was
as high as $5.47 as recently as Jan. 10.”
Good said the higher-than-expected prices since mid-October
reflect a number of factors. Reportedly, producers have been
reluctant to sell soybeans following the large price declines
into harvest. At the same time, the market required large
quantities of soybeans to refill the pipeline and to meet a
large increase in domestic and export consumption of soybeans.
The domestic monthly soybean crush declined to an eight-year-low
of 103 million bushels in August 2004, but exploded to a record
156 million bushels in October 2004.
Similarly, monthly exports declined to a trickle of about 11
million bushels in August 2004, but October exports were the
largest ever for that month, at 176 million bushels, and
November exports were even larger at 183 million bushels.
“The exports were driven by shipments to China,” Good noted.
“From September 2004 through November 2004, China imported 197
million bushels of U.S. soybeans, half of all the U.S. soybeans
exported and 24 percent more U.S. soybeans than imported during
the same period in 2003,” Good said. “The combination of
reluctant selling by producers and the market’s need for large
quantities of soybeans generated very strong basis levels and an
inversion in the structure of futures prices.”
Last week, the USDA production report indicated a slightly
smaller 2004 U.S. crop than forecast in November. The January
estimate of 3.141 billion bushels compares to the November
forecast of 3.15 billion bushels. In addition, the USDA
increased the forecast of the size of the domestic crush during
the current marketing year by 15 million bushels, lowered the
projection of year-ending stocks by 25 million, and increased
the forecast of the 2005 marketing year average farm price by 15
cents per bushel.
“Ironically, soybean prices declined following the release of
the new projections,” said Good. “March 2005 futures declined 24
cents and the central Illinois cash price declined 22 cents to
$5.20, in the three trading days following the report.”
To some extent, soybean prices were able to overcome an
extremely bearish fundamental situati8on from October 2004
through early January 2005, but now appear vulnerable to those
same fundamental factors, he added.
The monthly report by the National Oilseed Processors
Association released on Jan. 14, showed a smaller-than-expected
soybean crush in December 2004. In an unusual pattern, the
December crush was smaller than the November crush and only five
million bushels, 3.6 percent, larger than the crush in December
2003. At the same time, soybean oil inventories at the end of
December 2004 were larger than at the end of November 2004.
“The slow down in the domestic crush was reported at the time
that many analysts are also anticipating a slow down in export
sales to China,” said Good. “While Chinese demand remains
strong, South American supplies will provide seasonal
competition for U.S. soybeans over the next several months. As
of Jan. 6, the USDA reported 60 million bushels of outstanding
export sales to China, compared to 104 million bushels at the
same time last year. The USDA continues to project South
American soybean production at a record four billion bushels, 20
percent larger than last year’s harvest.”
By Bob Sampson, PhD |
