“Beans in the teens.” Soybean futures aren't quite there yet — January was trading at $12.45 as this is being written — but the highest prices in decades could help soybeans recover nearly 10 percent of their acreage and perhaps push back above the 70-million-acre mark in 2008.
Soybeans took it on the chin last spring when corn prices fueled by rising ethanol demand drew more than 8 million acres from soybeans to corn, reducing the 2007 crop to 64 million acres and production to 2.6 billion bushels (from 74.6 million acres and 3.2 billion bushels in 2006).
Initially, farmers and marketing analysts were skittish about how long the run-up in corn futures might last. Growers had heard the siren's call of ethanol and higher corn prices in the past only to see their hopes dashed when oil prices plummeted.
This time may be different, says Michael White, vice-president with Rabobank International's Food and Agribusiness Research Team.
“While grain prices in the United States retreated marginally after reaching high, and in some cases, record levels, it would seem that the U.S. grains and oilseeds sector has entered a period of fundamental change,” he said.
“The market has now accepted that the demand for grains as a feedstock for biofuels will be maintained in the long-term, despite some concerns over the levels of demand for ethanol in the United States.” (That prediction may have been bolstered when President Bush signed a new energy bill mandating 36 billion gallons of biofuel production by 2022 just before Christmas.)
The dramatic shift in U.S. corn acres — from 78.3 million in 2006 to 2007's 92.8 million — has been reflected, to some extent, in other countries with global corn plantings rising by 7 percent in the 2007-08 crop year. But adverse weather conditions in areas of China have resulted in production shortfalls.
USDA says the increase in planted area and rise in corn production — to 769.3 million metric tons or 28.3 billion bushels worldwide — could have an impact on the outlook for grains in 2008, causing some weakening of corn prices and a resurgence in interest in soybeans short-term.
“After a strong performance in the 2007-08 calendar year, corn acreage in the United States is likely to dip slightly, as some growers take advantage of higher soybean prices, and respond cautiously to a re-adjustment of the ethanol market structure,” said Whitehead, a speaker at Rabobank's 2008 Ag Outlook Seminar.
“However, as the ethanol market in the United States becomes more efficient, and as U.S. government support for biofuels solidifies, a return to corn acreage and good prices seems likely.”
Export demand is also on the rise for corn. U.S. corn exports in 2007-08 are expected to rise about 5 percent to 60 million metric tons or 2.2 billion bushels driven by strong demand in the face of weaker global wheat crops and a reduced Chinese corn crop (due to hot conditions in the northeast portion of the country).
“The potential for stronger increases has been dissipated by strong competition from South American exporters,” said Whitehead. “Looking forward, corn exports will be largely influenced by the demand from China. This level will be determined by the size of the Chinese crop and domestic regulatory changes on Chinese corn usage.”
Production in Brazil and Argentina appears also to be flattening because of dry conditions in their primary growing regions. Argentina's production is forecast to remain around 47 million metric tons, while Brazil's farmers could again produce roughly 60 million metric tons.
The result has been Chicago soybean futures to dream of with both the nearby and new crop futures approaching $12.50 per bushel as the new year began. (Concerns about the dry weather in Argentina and poor snow cover in the wheat areas of the United States sent nearby soybean futures up 33 cents a bushel on the first trading day.)
“Not only has soybean production been decreasing in the United States,” said Whitehead, “but ending stocks and stocks-to-use ratios are also forecast to fall. Ending stocks for the 2006-07 calendar year are estimated around 575 million bushels and the 2007-08 stocks are forecast to be half this amount due to high demand for soybeans.”
The stocks-to-use ratio thus is forecast to decline from about 18 percent in 2006-07 to 7.5 percent in 2007-08.
Higher soybean prices and the rising cost of nitrogen fertilizer are expected to bring some acres back to soybeans in 2008, according to Whitehead. (Nitrogen prices are roughly double what they were at this point in 2007.)
“However, many farmers will continue planting corn-on-corn, as the yield loss is minimal. Regaining 5 million soybean acres or more for the 2008-09 calendar year may be necessary to prevent excessive speculation in the soft commodities market and resultant price fluctuations.”
On the other hand, the United States will continue to face strong export competition from Argentina and Brazil because of economic factors in those countries. In Argentina, for example, the country's energy crisis has led to a reduction in soybean crush and port activity, leaving more supplies in storage.
China will also play a dominant role in the price forecasts for soybeans, according to Rabobank's economists. China remains the world's largest importer of soybeans, accounting for slightly less than half of global imports.
“As a result of reduced domestic production in 2007-08, imports are forecast to climb to about 34 million tons or 1.25 billion bushels, up almost 20 percent from last year,” says Whitehead. “Chinese demand has also been boosted by the government's moves to expand cattle, pork and poultry herds.”
With soybean prices likely to remain high due to the lower ending stocks, the 2008-09 calendar year is likely to see U.S. soybean acreage recover nearly 10 percent, according to Whitehead. “That would mean the acreage possibly pushing back above 70 million bushels and recovering most of the acreage planted to corn in 2007.”