Everyone’s been talking about sizzling corn prices taking a big bite out of cotton acres this spring — if adverse weather or a shortage of corn hybrids adapted to the South don’t interfere.
But the demand for more corn to feed the nation’s growing ethanol monster could also have an impact on soybean acres.
The possibility farmers could plant 4 million to 5 million fewer acres of soybeans this year is one of the driving forces behind higher futures prices, said Brad Anderson, senior vice-president at Informa Economics Inc. (formerly known as the Sparks Companies) in Memphis, Tenn.
“The latest survey we’ve run shows farmers intend to plant 70.9 million acres of soybeans in 2007,” Anderson said. “That’s down 4.6 million acres from last year’s 75.5 million acres. If realized, 70.9 million would be the smallest planted acreage since 1995.”
Assuming a yield of 42.8 bushels per acre, which Informa thinks is a reasonable “trend yield,” farmers would produce a crop of about 3 billion bushels, he said. “That will not be equal to what we expect we will use next year — 3.15 billion bushels.”
Since Anderson spoke at a recent meeting, USDA has raised its forecast of 2006 production to 3.15 billion bushels. But the increase seems to have done little to dampen the bull market for soybeans. (March 2007 soybean futures closed at $7.55 on Feb. 13, up 45 cents per bushel from two weeks earlier.)
USDA has also raised its estimate of 2006-07 ending stocks to 595 million bushels, which would be a record amount. But, then, high ending stocks have not been much of a deterrent to higher soybean prices, either.
“It’s a little strange that we have a near record carryout coming down the pike here on soybeans, and yet we have soybean futures prices at more than $7,” Anderson said. “What’s going on? Well, energy is what’s going on.”
Energy is impacting corn, he says, because “ethanol is or has been very profitable. That industry is growing by leaps and bounds. It needs more acreage, and it’s getting its acreage from soybeans and cotton and rice and any other crop it can get its hands on.”
Soybean ending stocks have been rising steadily since 2003, bouncing from 112 million in 2003-04 to 256 million in 2004-05 to 449 million bushels at the end of the 2005-06 marketing year.
“We do have a big carryout — over 550 million bushels this year,” said Anderson, who grew up on a corn and soybean farm in southwest Minnesota. “We had a huge crop — 3.06 billion last year, and we have relatively strong demand but it’s no match for the production we’ve had this year.” (USDA’s Feb. 12 forecast put the 2006 figure at 3.18 billion.)
He said that situation will likely change in 2007-08. “Indications are farmers are going to switch a lot of acreage from soybeans to corn. Even with a big South American crop, we’re going to start cutting into this big carryout that we’ve been lugging around the last couple of years.”
Defying the usual logic that says ending stocks and prices move in opposite directions, soybean prices have been trading at levels last seen in the summer of 2005. November 2007 futures hit a contract high of $8.08 per bushel on Feb. 9, the highest they’ve been since July 1996.
“We have prices here that are at levels we last saw back in the summer of 2005 when central Illinois was burning up,” said Anderson. “We thought that drought was going to extend to other parts of the Corn Belt, but it stayed mainly confined to Illinois and Missouri.
“We actually had a pretty decent soybean crop, and that eventually got reflected into prices.”
Even with production remaining high in the Midwest — 3.12 billion bushels in the 2004-05 marketing year — Chicago Board of Trade soybean futures remained in the high-$5, low-$6 area in the two years that followed.
“Our low point in soybeans happened last fall,” he said. “We finally began to feel the effects of that huge carryout because there were so many beans under CCC loan. Farmers were redeeming them from the loan and selling them. We felt that pressure back in August and September.”
In October, USDA surprised the futures markets by reducing both the harvested acreage and production for corn, sending prices for the latter even higher. Then soybean futures began to move up as the implications of increased corn acres began to sink in.
If farmers do shift a substantial amount of acres from soybeans to corn in 2008, the normally “burdensome” stocks of more than 550 million bushels should begin to ease. Informa’s soybean forecast or balance sheet shows the carryover dropping to around 400 million bushels next marketing year.
“If you go into 2008 and 2009, and we keep losing acres to corn, that balance sheet could begin to look pretty good,” said Anderson. “I think that’s one reason soybean prices will have to be around $7 — to get South America back to expanding its acres.”
Over the last two years, he notes, Brazil has been reducing its soybean area because of currency exchange problems. Argentina is expected to harvest a record area and record yields in March and April but still trails Brazil in the amount of soybeans it produces (44 million metric tons versus 56 million metric tons for Brazil).
“Eventually, we’re going to need more soybeans in the world as world demand catches up with our ability to produce,” he said. “And I don’t think that it’s going to be the United States that expands soybean production because we will be focused on corn as long as these energy prices are favorable.
“Where are we going to get the area? It’s going to have to come from South America. We’re going to have to pay those guys enough to increase their production significantly.”