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March 3, 2005 Market Advisor: Soybean Prices Surprisingly Strong
Poor moisture conditions in Southern Brazil have resulted in a significant soybean price increase. November futures climbed from $5.20 on Feb. 9 to $6.22 on March 1. Because U.S. and world stocks are projected to be very large at the end of this marketing year, the strong price increase has been a surprise, although a pleasant one. Keep in mind that even with a smaller-than-projected crop in Brazil, very large carryover stocks still are expected. The USDA projected a soybean crop in Brazil at 63 million metric tons in February, up from 52.6 million metric tons a year ago. The lowest estimate that I have observed for this year is 58 million metric tons. A 5-million metric ton reduction would still leave world-ending stocks at a record 56.4 million metric tons versus 38.9 for the past marketing year and the 2002-03 high of 40.6 million metric tons. In effect, the March 1 price provides an excellent opportunity to sell remaining inventory and aggressively sell the 2005 crop. A combination of elevator contracts, out-of-the-money call options and crop revenue insurance should be used to cover production and price risks. November futures could be more than a dollar lower at harvest than on March 1. USDA projected a seasonal average farm price of $4.50 for 2005-06 during its outlook conference in February. The $4.50 U.S. price converts to a North Dakota price of about $4.25. For prices to continue moving higher, the situation in Brazil will need to deteriorate further and other factors may need to come into play. U.S. acres, weather, rust, exports, crush and farmer selling are among the key factors that will influence prices in the months ahead. USDA projected that farmers will plant 2 million fewer acres in 2005. However, will current prices result in higher-than-projected acres? In addition, will rust significantly hurt yields? USDA’s trend yield estimate does not suggest an impact. A positive factor is that soybean exports are doing well. For the week ending Feb. 17, export commitments to date were 89 percent of the exports projected for the marketing year. Commitments were higher last year at this time at 94 percent, but the five-year average is lower at 80 percent. Because demand is strong and farmer selling has been reserved, the basis for soybeans has been considerably stronger than average. However, with large stocks still on farms, the basis and overall price could deteriorate rapidly if selling picks up and demand slows down. ### Source: George
Flaskerud, (701) 231-7377, george.flaskerud@ndsu.edu |
Market Advisor: |
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North Dakota State University |
