Providing a marketing outlook on a particular commodity involves much more these days than simply looking at supply and demand numbers, says Chuck Danehower, University of Tennessee Extension farm management specialist. In soybeans, as in all farm commodities, several issues affect the market.
“One of those issues is the strength or weakness of the dollar,” says Danehower. “Going back to 2007, as the dollar weakens, beans will strengthen. When the dollar goes back up, soybeans go down. There’s a pretty strong relationship with what the dollar is doing. That affects exports and makes our products cheaper abroad. You also can tell what the other commodity markets are doing based on what the dollar index is doing.”
In 2004, he says, the dollar strengthened and the bean market strengthened, but the market fundamentals took over during that particular year.
The crude oil market also affects the soybean market, though it affects corn and ethanol more, says Danehower. “But crude oil affects soybeans and biodiesel,” he says.
The general state of the world and U.S. economies also impact the market, he adds. “A lot of times, I think if there’s no real big news occurring as far as agriculture and commodities, weather or exports, then the market might be doing whatever the stock market does. If the stock market has a good day and there’s good economic data, the commodity market prices will be good. There’s not a strong correlation, but more so on those days when there’s not a lot of fundamental information being generated about the commodity markets,” he says.
Yet another market factor is index commodity funds, says Danehower. “This is the trader’s position versus the price. In 2008, commodity and index funds had quite a bit of position. But they liquidated and got out of some of their positions, and the price of soybeans went down. Whether or not they will be restricted on doing that in the future remains to be seen,” he says.
Soybeans have been in some sort of weather market all year, he says. “This started back in January with Argentina and its drought. That was the first weather market, and there have been other smaller ones. Argentina had its worst drought in 50 years. They were down quite a bit and that affects their production and benefited our exports. They’ll need normal precipitation to insure the crop they’re now protecting.”
It’s uncertain how the wet spring and soggy conditions during harvest will affect final planted acres and yields, says Danehower.
“I’ve had farmers tell me it was the wettest planting season they’ve ever had. That’s also the case in the eastern part of the Midwest. But we know our farmers can catch up in a hurry. Being behind now is different from being behind 10 or 15 years ago. If a farmer gets a small window of opportunity with the kind of equipment we have now, we can catch up,” he says.
Asian soybean rust has not had an impact on the soybean market this year, says Danehower. “In Tennessee, most of it came in late and we had very few beans that needed to be sprayed. Some late double-cropped beans that were planted in early July were sprayed. We have some generic chemicals, so the price of spraying has come down. Now, the price of flying them on is more than the price of the chemicals.
According to USDA, soybean production remains on target for a record-high year and is forecast at 3.25 billion bushels, up 10 percent from 2008. Based on Oct. 1 conditions, soybean yields are expected to average 42.4 bushels per acre, up 2.7 percent from 2008. If realized, this will be the third highest yield on record. Growers are expected to harvest 76.6 million acres of soybeans, which is the largest area on record.
Last year was a record one for soybean exports and this year is expected to be another record, says Danehower.
If ending stocks finish at about 220 million bushels, growers can expect a price of about $9.10 per bushel, he says. “If we had ending stocks in the low 200-million-bushel range, that’s probably indicative of a $9 to $9.40 price. If we get in the 300-million-bushel range on ending stocks, we could drop below $8 per bushel.”
It’s interesting, he says, that prices have responded so well in the last couple of years. “The hardest point to make to growers is not to expect $14 to $16 beans. Many growers don’t think $10 is so good. They’ll wait before booking more. Growers need to adjust their thinking on the value of the crop. At the beginning of the year, producers were not interested in $9 — they were waiting for $10. Fortunately, they got $10. Nine dollars is a good floor for the time being.”
Looking ahead to 2010, if two million acres move from corn to soybeans, it could help to keep prices in the $9 to $11 range, he says.