NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
February 12, 1998
George Flaskerud, Extension Crops Economist
NDSU Extension Service
Contracts and put options on 1998 soybeans should probably be initiated by the middle of March if you believe, as I do, that the Planting Intentions Report on March 31 will show that farmers plan to substantially increase the number of acres planted to soybeans in 1998. New crop as well as old crop prices are likely to drop following the report, especially if South American production continues to increase. A price recovery might then depend either on how many acres are switched from soybeans to corn, or on adverse growing conditions.
Soybean plantings could increase by 2.5 million acres, according to Darrel Good, extension economist at the University of Illinois. Such an increase, combined with a yield of 40 bushels per acre, could result in a crop of 2.97 billion bushels and November futures under $6.
USDA is projecting a South American soybean crop of 1.796 billion bushels, up 20 percent from last year's record harvest. Much of the crop will be harvested in March and be available to the world market beginning in April.
What are the chances that farmers will change their minds after the March 31 Planting Intentions Report is released? Farmers in the primary soybean/corn growing area like to keep the two crops in balance for agronomic and farm management reasons. But if soybean and corn prices narrow enough, acreage shifts will likely occur. A modest increase in December corn futures and a modest decrease in November soybean futures could result in an acreage shift. Actual acres planted are reported by USDA on June 30.
A shift of acres from soybeans to corn could lead to a soybean price recovery in July. But sales opportunities at that time may not be much better than this winter if growing conditions are generally favorable. A weather rally may be the only hope if the switch does not occur.
New crop sales this winter can be made in various ways. I would suggest forward contracting one-third and buying put options on one-third. Using this strategy, a price floor is established on two-thirds of anticipated production while the upside potential remains on two-thirds because the put option only establishes a floor.
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Source: George Flaskerud (701) 231-7377
Editor: Barry Brissman (701) 231-7866