By David Asbridge

It appears that U.S. soybean farmers will harvest another record soybean crop this year. The United States Department of Agriculture (USDA) has estimated the 2010 soybean crop at 3.43 billion bushels based on a record planted acreage of 78.9 million acres and a record-tying yield of 44.0 bushels per acre. The 2009 crop had set the previous records for area, yield and production. USDA based these estimates on the June 30 Acreage Report, the first field-based survey of the season for the yield determination, as well as on crop condition ratings and weather.

On the demand side, forecasts come in less optimistic. USDA predicts soybean crush will fall by about 100 million bushels from the 2009 level due to increased production in South America. The large supply increase will likely reduce U.S. exports for both soybean meal and oil. USDA anticipates U.S. soybean meal exports to fall by about 23 percent or 1.6 million tons this year. Meanwhile, USDA expects soybean oil exports to fall by 35 percent, or 1.15 billion pounds.

Brazil and Argentina could make up the difference in U.S. exports because both meal and oil world trade is expected to expand this year due to the higher availability of the products and the lower price for the meal. Argentina is expected to be the largest meal exporter this year with almost 30 million tons. Brazil comes in second at just over 12 million and the U.S. behind that with 9 million. The European Union (EU-27) is expected to be the largest market for meal again this year at about 23 million tonnes. As for soybean oil exports, Argentina is also expected to be the leader with about 5.2 million tonnes, followed by Brazil with 1.2 million and the U.S. with just under 1 million tonnes. China is expected to the largest import market with almost 10 million tonnes imported this year.

Like the products, increased exports of whole soybeans from Brazil and Argentina could reduce U.S. exports, albeit by a smaller percentage. U.S. whole soybean exports are expected to decline by 2 percent to 3 percent from the record 1.47 billion bushels set during the 2009 crop year. The situation remains similar to soy products from South America. Brazil and Argentina also have more soybeans to meet the needs of the export market. The United States remains the largest whole bean exporter with Brazil a distant second, about 400 million bushels behind for this crop year. Argentina is expected to be nearly one billion bushels behind the United States this crop year in terms of whole soybean exports.

With record production and lower usage expected, ending stocks will build in 2010 for U.S. soybeans. USDA estimates that the 2009 ending stocks at 160 million bushels, which is 4.8 percent of annual use. The tight level of stocks has contributed to the relatively high prices seen this year. To accentuate that relationship, the 2008 crop had only 138 million bushels of ending stocks for a 4.5 percent stocks-to-use ratio, and prices averaged almost $10 per bushel for the year. Going into 2010, however, stocks trend toward surplus levels. USDA expects stocks to grow to 360 million bushels, or 11.1 percent stocks-to-use, which is a bit on the surplus side. Around 8 percent stocks-to-use is considered to be neutral in terms of expected price change.

This level of stocks buildup will typically mean lower prices, and that is exactly what is expected to happen this year. From the 2009 average of about $9.60 per bushel, prices for the 2010 crop are expected to fall slightly and average around $9.25 per bushel. This is the average of the cash prices received by farmers for the crop year beginning September 1, 2010, through July 31, 2011. If this price average turns out to be true, then any opportunities to sell above that level (adjusted for your location compared to the average) should be considered. Currently, the bids are about $9.80 per bushel for new-crop beans in central Illinois, which is usually close to the average.

Now that we have an idea about the 2010 crop, it is time to talk a bit about what might happen in 2011. As of this writing, the November 2010 beans/December 2010 corn ratio is about 2.4. Typically at this level, the “average” farmer remains indifferent toward switching from beans to corn or vice versa. A ratio higher than this indicates soybeans may be more profitable, whereas a ratio below this indicates that corn may be more profitable. This ratio provides an excellent indicator of possible acreage changes, as seen in the attached chart. When that ratio fell over 0.6 point going into the 2007 planting season, soybean acreage dropped about 11 million acres while corn acreage jumped about 15 million acres. When the ratio moved higher the next year, acreage went back up. Of course, many other factors influence planting decisions, such as weather and fertilizer prices, but the bean/corn price ratio offers a good indicator.

Pushing our example out even further, the price ratio between November 2011 soybeans and December 2011 corn currently sits at 2.3. This indicates to me that we should expect an increase in corn acres in 2011. The traders are looking ahead at the tightening corn balance and surplus soybean balance and making the inference that the United States should produce more corn next year and fewer soybeans. There are a lot of other factors involved, but this one is a good indication of what could happen next year.

Speaking of next year, this article represents a year since I began writing the Market Production Analysis and Market Outlook for the USB website. I hope that you have gained a lot of information and knowledge about the bean market over the past year and that we will be able to continue this into the new crop year as well. And, as usual, please leave any comments or questions in the space below.

So long for now, and may all your soybean sales be profitable.

posted by Expert 2:57 pm