NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

March 25, 1999

The Market Advisor: Soybean Rally Suspect, Plan Sales

George Flaskerud, Extension Crops Economist
NDSU Extension Service

Soybean prices have stopped going down, at least for now. The question is whether they will trade sideways into late spring or attempt to rally further. A move up is consistent with the seasonal price pattern for soybeans. It is also consistent with the technician's view of the market. Unfortunately, a move up does not fit well with supply-demand fundamentals as they are known today. This divergence suggests that rallies be used to sell remaining soybeans in the bin and to also make new crop sales using elevator contracts and put options.

The November futures contract price on the Chicago Board of Trade turned the corner on Feb. 26 at a low of $4.80. By March 22, it had climbed to a high of $5.22. Levels of technical resistance to further price increases can be found at approximately $5.32, $5.37, $5.63, $5.74 and the contract high of $6.25.

A rally in prices above the $5.37 level may need some help from USDA's March 31 Planting Intentions Report. An acreage increase of less than 2 percent would catch the trade by surprise and could result in further price increases. The trade is currently expecting an increase of about 3 percent. Weather problems would likely be needed to push November futures beyond $5.63.

The seasonal high price on soybeans tends to occur during the April-May time frame. Price strength into that period may occur, but the strength is likely to be modest. The South American soybean crop is expected to be almost as big as last year's cropinstead of the 10-percent-smaller crop expected by USDA last fall. Export commitments (actual exports plus unshipped sales) as of March 11 were unremarkable, being about on par with the five-year average.

Soybean prices look quite negative from a supply-demand point of view. November futures are likely to be under $5 at harvest, with a 3-percent acreage increase and normal yields. A best-case scenario could result in November futures at about $5.75 at harvest, with an acreage increase of about 1 percent and a U.S. average yield of about 36 bushels per acre. But this scenario has only about a 20 percent chance of happening.

Consider using a minimum-price contract to sell inventory. That means you can still capture a portion of any increase in futures prices that may occur because of adverse growing condition.

I would sell the first one-third of anticipated new crop production by using a futures-fixed contract. In this contract, the basis is left open, usually until delivery. The current basis is very weak. Leaving it open provides at least the opportunity for a stronger basis by harvest.

I would use put options to sell the second one-third. Production risk prohibits the use of contracts at this level. I would sell more than two-thirds using puts only if substantial weather rallies develop this summer.

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Source: George Flaskerud (701) 231-7377

Editor: Dean Hulse (701) 231-6136