Farm & Ranch Guide: North Dakota's Ag Newspaper

Corn is made in July and soybeans are made in August. The soybean industry will be watching the weather carefully for the next few weeks to determine the size of the 2006 U.S. soybean crop.

As of July 23, 32 percent of the nation's soybean crop was setting pods - ahead of the five-year average of 24 percent, but comparable to 2005.

University of Illinois Extension Grain Marketing Economist Darrel Good said that the condition of the soybean crop in late July 2006 was very similar to the U.S. soybean crop in 2005.

The crop was rated 54 percent good to excellent on July 23, 2006, just as it was one year earlier.

“Anything above 50 percent good to excellent means we have potential for trend yield,” said Good.

At 54 percent good to excellent, there isn't a lot of room for crop deterioration before trend yield is cut. Should August turn out to be hot and dry, soybean yields would most likely be cut.

On the flip side of the coin, there are plenty of soybean acres this year, and the U.S. has a big supply of soybeans going into harvest. In addition, August isn't over yet, and some weather models predicted more rain and cooler temperatures for late August.

“There really is no fear of a shortage of soybeans at this point,” said Good. “Demand will continue to increase, but more modestly than corn. Byproduct feed from ethanol is going to increasingly provide competition with soybean meal.”

For soybeans, USDA calculates the 2006 trend yield at 40.7 bushels/acre. That yield would produce a crop of 3.01 billion bushels.

USDA projects that consumption of U.S. soybeans will increase from 2.802 billion bushels for 2005-06 to 2.998 billion bushels for 2006-07, leaving Sept. 1, 2007 inventories at 560 million bushels. The carryout equals 18.7 percent of projected use.

Good said that that stocks-to-use ratio and trend line yields suggests farmers will receive an average 2006-07 farm price of $5.45.

“The U.S. average farm price is right at $5.65 - that is probably 25 cents higher than what you might have expected given the surplus we have,” he said. “About $5.40 would have been a reasonable price expectation.”

At elevators across the upper Midwest on July 28, soybeans were $4.77-5.22/bushel according to the Toolshed Ag Information Network.

At one elevator in west central Minnesota followed in this column, the cash price on July 28 was $5.09 with a basis of 68 cents under. In mid-July, cash soybeans were $5.35 with a basis of 68 cents under. The basis was unchanged but the soybean price was 26 cents lower at the end of July.

Chicago Board of Trade closed on July 28 with September at $5.84; November at $5.98; January 2007 at $6.10 1/2; March at $6.19 1/2; July at $6.39 1/2; and November 2007 at $6.52.

Compared with mid-July, the late July futures contracts were about 26 cents lower across the board.

According to the Chicago Board of Trade, traders on July 28 were concerned about four to five days of intense heat for the western and central Corn Belt. Weather models were mixed on whether enough rain would fall to keep the soybean crop moving ahead given temperatures were in the 90s.

Good pointed out that the average farm price from 1998 through 2001 was about $4.50/bushel.

“Now our surplus is much bigger than it was then, yet we are $1 higher,” he said. “That is the conundrum.”

Local elevator managers know there are plenty of soybeans available because the basis has remained wide this summer.

“If we do get trend yields, futures are probably marginally overpriced,” said Good. “The futures market still has got a weather premium built into it.”

Thinking about soybeans long term - Good suggested that if the market has to buy more acres for corn, then the U.S. will have fewer acres for soybeans.

“What it looks like is if we want to gauge what is the right level of soybean prices in the future, we should probably think in terms of what price does it take for Brazil to expand production,” said Good.

Brazil is struggling with low soybean prices, high production costs and challenging exchange rates.

“Beginning not this fall - but certainly beginning the fall of 2007 - if the U.S. plants a lot more corn, Brazil is going to have to fill the gap with more soybeans,” said Good. “Futures prices will have to be high enough to encourage them to do so. That looks like our next breakthrough in soybean prices.”