The best marketing plan for soybean and corn growers in 2001 may be to simply plant, wait and watch the market for any potential rallies. That was the message growers likely came away with after listening to Willard Sparks' discuss the grain market outlook at a recent meeting.
Specifically, Sparks, chairman of Sparks Companies, Inc., in Memphis, is projecting that the 2001 crop of soybeans will trade between $3.80 and $4.20 per bushel. He's slightly more optimistic about the corn market, which he says has the potential to rally higher at some point during the 2001 market year.
In both instances, his advice to growers is basically to take a wait-and-see approach. “Corn may be a commodity we have a chance to sell at 30 to 40 cents higher than it is today. I wouldn't get in any hurry in case this scenario plays out.” Soybeans, he says, “could drop below $4 per bushel.” Because the soybean price is below loan, Sparks says he wouldn't recommend selling the 2001 soybean crop in advance at this point.
“If all of the acreage stays where it is projected to be today, we're going to lose a couple million acres of corn as we go into next year, with almost all of it going into soybeans,” he says.
According to Sparks, soybean acreage in the United States has increased from 60 million planted acres in 1993 to an expected 77 million acres of soybeans in 2001. In the last three years, he says, much of the increase in soybean acreage has come at the expense of corn acreage.
Until now, he says, soybean stocks haven't increased greatly despite the increased acreage because demand has increased along with the acreage expansion. However, Sparks says, “If U.S. soybean growers produce an average yield somewhere around 40 bushels in 2001, that increased production will add a couple million bushels to the carry-out stocks. That will put soybeans trading in the mid-four dollar range until we get rid of some soybeans or convince Brazil to quit planting as many soybeans.”
Adding to the increased production in the United States are acreage increases in other soybean-producing regions, including South America, which, according to Sparks, has increased its soybean acreage from 16 million hectares in 1993 to its current 23 million hectares. One hectare is roughly equal to two-and-one-half acres.
“Brazil is expected to harvest a record soybean crop this spring and it is aggressively selling new crop soybeans below U.S. prices to get rid of its surplus,” Sparks says.
On the consumption side the only increase in demand is expected to come from Asia. “China is doing its part to get rid of our soybean surplus through its increased use of soybean meal,” he says. “One of the other big consumers of U.S. soybean meal is the European Union, because it is just about the only agricultural product that can be shipped into the EU without a tariff. However, currency exchange rates are hurting our demand. Because their currency is so cheap, it's making our oil too expensive.”
Putting all of these pieces together, Sparks says he expects the 2001 soybean crop to result in the addition of as many as 200 million bushels of soybean to world stocks.
So what does the increased production and leveling off of consumption levels mean for soybean prices?
“As we get closer and closer to getting these acres planted and making these crops the odds are that soybeans are going to move toward $4 per bushel as we get into the summer and fall.”
As a result, he says, farmers' marketing opportunities are limited. “It's pretty risky to book futures in advance of harvest when soybean prices are trading below loan. There may be some opportunity to sell your basis ahead, but there's nothing you can really do today to protect yourself as a producer. You don't have a lot of incentive to forward price at today's market level.”
Soybean producers' best marketing opportunity in 2001, Sparks says, may be to maximize their loan deficiency payments at harvest and keep close eyes on the market in the meantime.
“Almost every year, unanticipated pricing opportunities develop due to planting problems or weather conditions. Last year, at this time, we didn't know we were going to get the drought. As a result, we had a pretty good price rally in soybeans into the summer and then prices dropped again. It's hard to pin those possibilities down today, you just have to watch for them,” he says.
The expected increase in domestic soybean production could prove beneficial to corn prices in 2001. “The only thing that we to keep acreage in corn is a relatively high price of $2.40 plus per bushel,” Sparks says.
If U.S. corn growers produce an average yield around 136 bushels, Sparks believes, consumption will exceed production, which should raise prices. “The odds are we're not going to plant the acreage and we should have increased demand for corn.”
Despite the anticipation of a smaller crop, what Sparks terms the “big problem” with the corn market today is the export situation. “At one time, we thought China's exports would be down. But instead, they are aggressively exporting corn, which will add to the carry-out of corn after a couple years of near-zero growth. China is going to be a big competitor on corn.
“However, China and Argentina are our biggest exporters, and if they go into the World Trade Organization, they will have to stop subsidizing exports and could instead be importing corn,” he says.
“Brazil is expected to harvest a record soybean crop this spring and it is aggressively selling new crop soybeans below U.S. prices to get rid of its surplus.”
Sparks says he sees the potential for a maximum 10- to 15-cent drop in corn prices sometime in the 2001 marketing year. He advises growers to begin hedging their corn crops when prices are at 20 to 30 cents over loan.