THE June U.S. Department of Agriculture crop report further confirmed the huge difference between old-crop and new-crop fundamentals in soybeans.
With an estimated carryover in the old crop of only 125 million bu. — and that is relying on 90 million bu. being imported — tight doesn't begin to describe the old-crop situation.
Now, switch to the new crop. USDA estimates that 81.5 million acres were planted to soybeans, versus 76.5 million last year, and crop condition ratings are near the highest they've ever been in history. Many argue that planted acreage is actually going to be closer to 82.5 million acres, and they could well be correct.
With a yield of only 45.2 bu. per acre, the carryover would jump to 325 million bu. Add 2 bu. per acre to that, and the carryover will jump to more than 460 million bu.
Even with a carryover of 325 million bu., there is a strong possibility, in my opinion, that soybean prices will average under $10/bu. this coming year. If the carryover jumps to more than 460 million bu., downside price projections could be as low as $8/bu.
The Figure shows the dire straight of how the fundamentals are going to change worldwide. It isn't that production is increasing only in the U.S., but South America has been ramping up rapidly as well.
Buying soybean meal
Many readers of this publication are sitting on a fence wondering how far out to be bought in soybean meal with nearby futures trading just under $500 per ton and new-crop prices now dropping under $400 per ton. There are those in a camp who believe meal prices will hang on until the end of July and into August.
That is not the camp I am in. This is a market that is peaking as I write this report, and the downside move is going to be quick and much more extreme than many people anticipate.
Why? Markets are anticipatory by nature. This is one where high prices are already cutting into usage numbers, and buyers are starting to back away. Once prices start lower, buyers will back away aggressively not just here but worldwide. It will create a vacuum in the market, and prices will plunge.
Unless major production problems occur in July, downside price potential in soybean meal by harvest time appears to be around $350 per ton. Should that occur, then one could expect a long base-building phase where buying meal will be like watching paint dry.
The next three years in purchasing strategies for soybean meal and corn are going to be very different than they have been over the last three. Young merchandisers, for the most part, have not experienced a market like we are about ready to enter.
These are going to continue being very profitable times for poultry and pork producers. A common mistake that will likely be made in the months ahead is being too aggressive of a buyer in both meal and corn just because the price looks "cheap." In my opinion, there is no need to be an aggressive buyer of either one for several months — and maybe longer.
*Richard A. Brock, president of Brock Associates, has been publishing "The Brock Report" for more than 30 years. He leads the Brock Associates team and is responsible for the development of marketing strategies. Brock also serves as a commodity marketing adviser and price forecaster to many of the nation's largest agribusiness firms, food companies and financial institutions. He can be reached at email@example.com.