We don’t have a crystal ball to predict accurately what will happen for the weather and soybean production. What we can forecast is that because demand for U.S. beans has been so strong and will continue that way over the next two to three months, U.S. soybean supplies project to multi-year lows on March 1, 2013.
All eyes on South America
Basically, there is a global gamble in the soybean situation to consume as much of any surplus stocks of U.S. beans as possible by that date. The strategy at that point is for soybean demand-sourcing by global consumers to shift south immediately as those beans come in from the harvest. It is a delicate balance between covering the immediate needs out of the U.S., then swiftly and smoothly transitioning to South America to cover global needs from about March up until September 2013.
If things were to play out in the real world as they are choreographed on paper, the U.S. will be largely out of beans for export, either as beans or as meal, by April 1. Soybeans on hand in spring and summer 2013 will be just enough to meet domestic needs ahead of a large fall harvest, and really not much more than that.
The grave risk for consumers would be that there is another disappointing harvest in South America. If the market senses that development during this first quarter of 2013, we would expect soybean prices to rally sharply and remain high into the second half of 2013. But if it turns out that South America produces some fairly decent-sized crops, soybean prices will be vulnerable to more losses off of the summer peak.
Plantings projected higher
Among the most important decisions that farmers must make over the next three months is what their acreage mix will be for plantings this spring.
Our general view is that U.S. plantings will be a little higher in 2013. Southern and eastern Midwest farmers will again be attracted to the potential to plant soybeans after the wheat harvest. And, in parts of the Plains, those plantings may go in early on failed winter wheat if moisture levels show any improvement. Corn, of course, will compete strongly for acres, and that competition is the major impediment against a multi-million-acre increase in soybean plantings.
We see the soybean market doing what it can to ensure that there will be plenty of U.S. beans sown so that the recent era of tight stocks may be a thing of the past and find a means to produce more margin of supply comfort against the ever-present weather risks.
Assuming that weather returns to some semblance of normal in both major growing regions, soybean prices are expected to be under downward price pressure during much of the year. Under normal weather conditions, which most would characterize as favorable weather, soybean prices may reach back toward harvest lows at $12 per bushel, maybe lower. Meal prices would retreat back toward $300 per ton late in the year. But if there are more production losses in either South America or the U.S. next summer, $15 or higher soybeans could find an extended stay.
Bill Nelson is a senior economist at Doane Advisory Services.