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October 14, 2003

Cloud $9: Soybean prices could reach 1997 highs, economist says

WEST LAFAYETTE, Ind. – Soybean farmers disappointed with poor yields might feel less chagrined when it comes time to sell their crop, said Chris Hurt, a Purdue University agricultural economist.

Lower-than-average soybean production, coupled with an unrelenting demand for the oilseed, could provide enough momentum to send futures prices near $9 per bushel by spring, Hurt said.

Despite that possibility, Hurt cautioned farmers not to wait too long to sell their crop. Top cash prices could come sooner after harvest than later.

"The upside potential on soybean futures could well be the $9 level, last seen in the spring of 1997," Hurt said. "However, we are starting the rationing process early in the marketing year, and the traditional pattern is for prices to peak early in a short production year such as this.

"Often, prices are above the average yearly price in the early portion of the marketing year and below in the latter parts of the marketing year. The size of the South American crop may have a great deal of influence on when highs will be made."

In recent days soybean prices have moved to $7 or more per bushel.

Farmers across Indiana and the Midwest tell of soybean yields barely into double-digit bushels per acre in some early-maturing fields, with many crops averaging below 40 bushels an acre. On Friday (10/10), the U.S. Department of Agriculture estimated average national soybean yields of 34 bushels an acre, the lowest yield average in 10 years. Total U.S. soybean production is forecast at 2.468 billion bushels, down 281 million bushels from 2002.

Indiana's projected average yield is 40 bushels per acre, down 3 bushels an acre from the USDA's September projection and 1.5 bushels an acre below the 2002 state average. Hoosier farmers are expected to harvest 214 million bushels of soybeans this fall, off 25.5 million bushels from last year.

Inferior yields are but one factor pushing soybean prices higher. Another is shrinking stocks.

"Utilization will have to be cut by about 275 million bushels this year, simply because the U.S. will not have the inventory to sell the same number of bushels as last year," Hurt said. "Prices must move upward to a level to encourage users to reduce their purchases."

Prices above $9 per bushel would be possible were it not for the large South American soybean crop.

"The size of the Brazilian crop was raised by about 150 million bushels this month, as planted acres rise there in response to higher world prices," Hurt said. "For the first time ever, Brazilian soybean exports are expected to exceed those of the U.S."

Hurt advised farmers to follow a three-part strategy to maximize soybean sales potential.

"First, this is a short crop year and prices tend to peak early in the season around harvest, or even during harvest," he said. "The USDA is saying the average price will be about $6.50 a bushel for the entire marketing year. If we can price above that – and currently we can price well above that – it probably makes sense to price around harvesttime.

"The second window of opportunity would be late November to early December. In most years, soybean prices recover about 30-40 cents a bushel from late harvest going into Thanksgiving to early December. The third strategy is if South America should have some weather-related crop problems farmers need to decide how many bushels of soybeans to carry on into the winter. That is where we think we could see the very high prices like $9 on futures."

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Chris Hurt, (765) 494-4273, hurtc@purdue.edu

Related Web site:

Purdue University Department of Agricultural Economics: http://www.agecon.purdue.edu/

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/


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