Corn prices may have a bottom within sight, but not so for the soybean complex.
"Soybeans have a lot of downside price risk," says Corinne Alexander, Purdue University ag economist. November 2014 soybean futures after yesterday’s USDA reports were just over $9.90/bu. Even so, soybean futures could drop near $9, possibly below that with a large South American crop, Alexander said at a September 12 Purdue webinar. "We don’t see signs of a bottom yet." Because of that, she suggests that producers strongly consider pricing new crop soybeans soon, despite the fact that prices already have fallen sharply.
Not only that, Alexander suggests forward sales of 2015 soybeans, too, with November 2015 futures presently hovering just under $10/bu. She advocates 2015 sales now in part because Brazilian farmers could make a sizeable acreage switch: higher corn acres in recent years could revert back to soybeans. "That’s additional downside risk for soybeans," she adds. In the U.S., too, farmers might increase soybean acres in 2015, she adds. A hike in acreage in the top two soybean growing nations could spell lower prices for an extended period of time. "Lock in the price you’re being offered right now," Alexander suggests.
Purdue projections show that for 2015, soybean returns over variable costs for Indiana are $253/acre. That’s $100/acre higher than corn and well over that for single crop wheat. "I’ve never seen that before," Alexander notes.
That’s created an odd inverse in that it’s no longer corn driving soybean prices that has occurred in recent year, but soybeans becoming the grain and oilseed price leader. The market is currently saying it wants soybean acres, but the current and unusual price relationship between the two crops may not last long, says Jim Mintert, another Purdue ag economist. Rather than corn prices coming up to re-establish traditional relationships of returns, it’s more likely that soybean prices head lower, he adds. Purdue’s analysis shows variable costs for growing soybeans for 2015 of $219/acre versus $435/acre for growing corn.
In its September 11 World Agricultural Supply and Demand Estimates (WASDE), USDA projects ending soybean stocks for the 2014/15 marketing year of 475 million bushels with prices in the $10 range. But Purdue economists thinking ending stocks could be as much as 500 million bushels—more than three times higher than last year. "That’s a huge carryout," Alexander notes. It’s not just the U.S., either. Globally, soybean stocks-to-use is projected at 31.6%, the highest level ever.
Because soybeans have more downside price risk than corn, Alexander thinks that for producers who don’t have enough storage for both, storing corn makes the most sense, allowing producers to take advantage of the carry in the corn market.
Alexander says that while she thinks prices of both corn and soybeans are likely to revert back to levels of the early 2000s, even the 1990s, "the market overshoots to the upside and the downside." In addition, for both corn and soybeans, low prices could expand the demand base. But this is unlikely to occur quickly, in part because livestock numbers take time to increase, Mintert adds.