Tip: Keep an eye on soybean plantings in South America

By ANDREA JOHNSON, Assistant Editor
Thursday, September 25, 2008 3:18 PM CDT

Despite a rise in the value of the dollar, U.S. soybean exports will remain strong, according to a respected market analyst.

Mike Krueger, president of The Money Farm in West Fargo, N.D., pointed out that the dollar significantly rallied in September. Even with financial concerns on Wall Street, the dollar has increased in value.

“There are people who say the financial problems in western Europe and other parts of the world are far greater than it is in the U.S., and our dollar should strengthen,” Krueger said.

Although the weaker dollar received partial credit for good exports in the 2007/2008 marketing year, strong demand also received some credit.

“People always want to say a strong dollar hurts our exports, and I think in a normal pattern, that is accurate,” he said. “But the dollar has lost so much that even a 10-15 percent gain back in the dollar is not significant in terms of commodity prices.”

While the dollar is now stronger, not much has changed as far as world demand for soybeans and its components.

What has changed is soybeans cost less and are less expensive to ship than last year.

“Ocean freight rates are just one-third of what they were a year ago. Plus, we've taken $4-$5 out of the price of soybeans,” said Krueger. “For the next while, the U.S. is about the only market around, because world supplies have gotten tight.”

The timing of a sale has as much to do with the price of a commodity, as the value of the commodity. Krueger believes soybeans stocks will remain tight. If soybean supplies are limited - just as wheat stocks were limited last March - the commodity is expensive.

“At that point in time, it didn't matter where the dollar was trading because the U.S. had the only wheat for sale,” he said. “If you wanted to buy wheat, you had no choice at that period of time but to come here.”

This year, the world has a record wheat crop. Wheat prices are significantly lower.

There are some quality problems with wheat, in Eastern Europe, Russia and Ukraine, he said. More wheat will be fed to livestock, and that could reduce the need for U.S. corn exports.

Soybeans are a different story, though. Soybean supplies will remain tight, Krueger said.

“It will be important that people watch what goes on in the Southern Hemisphere,” said Krueger. “Brazil and Argentina have been very dry. Argentina has cut the size of their wheat crop. Of course, it is still five or six weeks away from planting soybeans, but weather in Brazil and Argentina are going to be very important - even more important than in years past.”

South America normally has a dry season in the winter, but Krueger said the dry season has lasted longer than it should.

On the Chicago Board of Trade, soybeans on Sept. 19 closed with November at $11.34 1/2 per bushel, January at $11.59, March at $11.73 and May at $11.82 per bushel.

Compared with prices on Sept. 5, the November contract was 42 cents lower, January was 40 cents lower, March was 34 cents lower, and May was 33 cents lower.

Comparing futures contracts on July 11 with prices Sept. 19, the November futures contract was $15.96 on July 11 - or $4.62 per bushel higher. The January contract was $16.10, $4.51 higher, and the March contract was $16.18, or $4.45 per bushel higher.

Several months ago, Krueger recommended marketing 40 percent of the 2008 crop of corn and soybeans.

“We're not increasing those sales percentages after this market collapse at all,” Krueger said. “We think farmers ought to be tight holders from now on. They will deliver the 30, 40 or 50 percent they have marketed and hang on to the rest. I think we're going to see a fairly decent price recovery in both corn and soybeans.”

At elevators across the upper Midwest, both old crop and new crop soybeans traded at $10.50 to $11.50 per bushel on Sept. 19, according to the Toolshed Ag Information Network.

At one elevator in western Minnesota followed in this column, soybeans on Sept. 19 were $10.58 per bushel with a basis of 98 cents under. Compared with a price of $11.52 on Sept. 8, soybeans were 94 cents cheaper and the basis widened by 73 cents.

The USDA Sept. 12 Crop Production report forecasts an average U.S. soybean yield of 40 bushels per acre - down half a bushel from the August report.

Soybean production is forecast at 2.93 billion bushels, down 1 percent from the August forecast, but up 13 percent from last year. The 2008 crop is expected to provide the fourth largest U.S. soybean production on record.

Many people within the soybean industry hope that the 2008 U.S. crop is larger than the USDA report forecasts. Conditions turned hot and dry in August, when soybeans are made. Actual yield reports from the field will start getting announced in the next few weeks. 

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