Marketing Strategies for Drought-bitten Soybeans

Strong world demand will likely push prices higher in short term.

Published on: Jul 16, 2012

Strong world demand will likely push prices higher in short term

Unlike three years ago, shiny new grain bins may go neglected at harvest this fall. The worsening drought will likely push prices to peak around harvest, even as drought-damaged yields make storage capacity less urgent.

Long-term trend yields normally add four-tenths of a bushel to year-on average U.S. yields, says University of Illinois economist Darrell Good. This year that trend yield would have been 43.4 bu. per acre (bpa). He now projects bean prices around $14 per bu. and yields around 40 bpa with likelihood for that number to drop further as dry weather continues across the Midwest.

Strong world demand will likely push prices higher in short term.
Strong world demand will likely push prices higher in short term.

"The difference between corn and soybeans is, we have a weak type demand scenario in corn and robust demand situation in soybeans for at least the next six months," says Good. He expects to see soybeans rationed with lower domestic crush. Chinese demand is the big question, and all signs point to robust demand from China, he adds. That country now imports a third of the world's soy production and accounts for 60% of world soy trade.

"There is probably room for exports to increase just a bit compared to last year, but …we're not going to have enough soybeans to meet the 1.5 billion bushels of exports that we had last year," he says.

South America, coming off drought and into a mild El Niño, sets up favorably for higher production. The market reflects that, with huge discounts for next year's soybean crop. "We're now counting on a rebound of South American production next year," adds Good.  "Last year's drought dinged them, but we expect them to bounce back. For the last half of the marketing year we'll have a lot more competition from South America."

Much like corn, Good expects a strong seasonal pattern for soybeans, with the market peaking early in the marketing year - maybe even pre-harvest - and perhaps at higher price levels than we have now. Prices will likely fall as the South American crop is confirmed.

"If the South American crop runs into trouble then the price decline may not occur at all," he adds. "So for now, it's higher prices in the near term and peaking downward after harvest."