Time to Price New Crop Soybeans?

Probably, but many farmers struggle to price new crop bushels when new crop futures are more than $1 per bushel higher.

Published on: May 4, 2012

With the spring rally to nearly $14 per bushel for November 2012 soybeans in early April, and prices still holding strong into early May, is it time to price some new crop soybeans? “It probably is time to do that, but many farmers aren’t eager to price new crop bushels when old crop futures are more than $1 per bushel higher,” notes Steve Johnson, an Iowa State University Extension farm management specialist. He provides the following observations and information.

The new-crop soybean futures contract has rallied nearly $2.75 per bushel since mid-December. The daily chart of the November 2012 soybean price accompanying this article depicts the rally to nearly $14 per bushel in early April; nearly the same level as the August high. Expect trendline support to hold this market at $13.40 per bushel or higher early this spring. A drop below this level and through the up-trending support line would trigger a selloff to perhaps the next level of support at the $12.60 per bushel level.

Time to Price New Crop Soybeans?
Time to Price New Crop Soybeans?

The primary fundamental reason for this futures price rally was weather problems in South America. This cut the size of that crop after they had larger planted acreage and good early season growing conditions. Commodity and index funds bought futures contracts and were holding record long positions by early-April.

USDA released its Prospective Planting Report on March 30. It indicated farmers in the U.S. would reduce 2012 soybean plantings to 73.9 million acres, down 1% from 2011 and 5% below 2010. This report supported both old and new crop soybean futures prices.

Expect to see continued soybean futures price volatility

U.S. and global ending stocks of soybeans should remain tight for the foreseeable future; however, holding old crop soybean futures above $15 per bushel or new crop soybean futures above $14 per bushel may be difficult to do—unless the 2012 crop runs into production problems. High prices have resulted from two years of soybean yield problems in Argentina, followed by difficulties this past year in Brazil and Paraguay.

Source: FuturesSource.com, April 16th, 2012
Source: FuturesSource.com, April 16th, 2012

A return to good weather conditions in the U.S. means a 3 billion bushel plus crop for 2012. Expect planted soybean acreage to increase above the March report’s finding with high prices at planting time. With the demise of La Nina weather conditions now confirmed, a potential 5-billion bushel soybean crop in South America next spring could overwhelm the global demand, increasing both U.S. and global ending stocks. The result would be much lower soybean prices than are currently being offered by the futures market.

Also, outside market factors like European debt and China’s slowing economic growth could add to the uncertainties beyond just soybean market supply and demand fundamentals.

Source: Wisner, ISU Economics, March 12th, 2012
Source: Wisner, ISU Economics, March 12th, 2012

Cash price forecast for new crop soybeans

ISU Extension Economist, Dr. Robert Wisner, provides cash price forecasts for the 2012 crop every few months. His forecasts are posted on the ISU Extension Ag Decision Maker website under “Current Outlook & Profitability.” Wisner projects cash prices for the 2012-13 crop marketing year which begins September 1 using a bell-shaped curve with three different probabilities and cash prices.

Those prices are showed in the bell-curve graph accompanying this article. Note Wisner’s assumption of 77 million acres planted in the U.S. and a national average yield of 43.5 bushels per acre for 2012.

Based on these assumptions, the $12.80 per bushel high national average cash price is below what the local cash market is offering in mid-April for new crop cash bids at harvest. Locking in $13 per bushel and higher cash prices for soybeans should be attractive for many farmers. This also allows for cash flow to be generated and avoids storage and interest costs.

5 reasons to sell new crop soybeans at these strong prices

Think of your experience in both 2008 and 2011 when soybean futures prices rallied to record levels. While these high prices were not forecast, once realized, many farmers struggled to sell additional bushels--thinking prices might go even higher. They regret the sales made earlier at lower prices, and fail to continue to sell bushels that will increase their overall average sales price.

Here are five reasons to consider getting an adequate number of bushels of new crop soybeans priced at attractive levels:

1) Most bullish fundamental factors are already reflected in new crop soybean futures price.

2) High soybean prices should help “steal some corn acres.” More soybean acres in 2012 will likely come from double-cropping. That is, planting soybeans following winter wheat harvest in areas of the U.S. where double-cropping is practiced. Also, some soybeans will likely be planted on acres that were in CRP and some will be put on acres that were “prevented planting” acres in recent years.

3) Selling insurance bushels, since new crop November 2012 futures are currently more than $1 per bushel above the crop insurance projected price guarantee of $12.55 per bushel.

4) Seasonal price trends suggest that November soybean prices peak during the spring months.

5) Many farms likely haven’t generated adequate cash flow needs for next fall and winter.

CONCLUSION: Steve Johnson summarizes the current situation and outlook to help guide your soybean pricing strategy:

  • Expect new crop November soybean futures prices to rally back near the $14 per bushel level. This should provide farmers a chance to lock in attractive cash prices, likely above $13 per bushel at harvest.
  • The demise of La Nina conditions should benefit summer growing conditions in 2012. With good spring planting weather in the U.S.  and adequate moisture, especially in late summer, you can expect to see downward pressure on the new crop November 2012 soybean futures price.
  • Consider now your cash flow needs for this coming fall. Many farmers will likely want to pre-pay their 2013 expenses this fall to avoid large 2012 income tax liabilities.

For farm management information and analysis, go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farmmanagement.htm.