What’s Ahead for Soybean Markets

Gary SchnitkeyUniversity of Illinois

1

World Soybean Production

2

0

50

100

150

200

250

300

Mill

ion

Met

ric To

n

Marketing Year

ROW

US

South America

World Consumption

3

0

50

100

150

200

250

300

Mill

ion

Met

ric

Ton

Marketing Year

ROW

US

South America

World Ending Stocks

4

US Production

Year Yield Acres Production

Bu/acre Thousand Million bu.

2008 39.7 74,681 2,967

2009 44.0 76,373 3,359

2010 43.5 76,616 3,329

2011 41.5 73,636 3,056

2012 40.5 75,315 3,050

5

2012 Projected in July, WASDE report

Current unknown is yield

U.S. Yield

6

2012 Trend Yield = 43.7 bushels

Worst Yielding Years Since 1972

U.S. Soybean ProductionYear Actual Trend Difference

1988 27.0 33.1 -6.1

2003 33.9 39.7 -5.8

1983 26.2 30.9 -4.7

1974 23.7 26.9 -3.2

1984 28.1 31.3 -3.2

2011 41.5 43.3 -1.8

2012 P 40.5 43.7 -3.2

7

Precipitation at Urbana, IL (inches)

Year June July August

2012 2.2

2011 4.2 1.5 1.7

1988 .3 3.6 1.3

Avg 4.1 3.9 3.6

8

Lowest Rainfall Years Since 1910, Urbana, IL

July RainfallYear Inches

1916 .5

1930 .5

1914 .6

1933 .6

1911 .6

1924 .8

1940 .9

August RainfallYear Inches

1953 .7

2008 .8

1937 .8

1961 1.3

1988 1.3

1960 1.3

1986 1.4

9

10

Percent of Normal Rainfall, Last 30 Days, AHPIS

11

Percent of Normal Rainfall, Last 60 Days, AHPIS

12

November 2012 Futures Contract

13

Marketing 2012 Crop

• Short crops have long tails with early peak, 5 of 8 years before November of year of harvest

• Darrel Good on Farmdocdaily (www.farmdocdaily.illinois.edu)

14

For RP holders, Consider Hedging Production

• Nov 2012 contract on 7/25/2012 was at $16.00 per bushel

• Many hold RP policies at 75% and higher coverage levels– Uses higher of projected or harvest price– When harvest price is above projected

prices, RP makes payments on yield below yield guarantee (TA-APH yield times coverage level)

15

RP and Hedging

• TA-APH yield = 45 bushels• Coverage level = 80%

• Make payments when yield below 36 bushels (45 bushels x .8)

• Shortfall at harvest price, when harvest price is above projected price ($12.55)

16

• Current prices are not good price

• Can hedge up to production guarantee

17

Pre-harvest Hedging

• Good strategy to spread sales, including pre-harvest

• Hedging losses are occurring on spring hedges

• Be consistent

18

Projected Production

Year USSouth

America ROW Total

2008/09 80.75 93.80 37.82 211.95

2009/10 91.42 130.88 38.76 261.08

2010/11 90.61 132.87 41.22 264.69

2011/12 83.17 110.50 43.20 235.88

2012/13P 83.01 140.80 43.35 267.16

Following shows projections with 37.5 U.S. yield

2012/13P 77.00 140.80 43.35 261.15

19

South American Production(million metric ton)

20

0

20

40

60

80

100

120

140

160M

illio

n M

etric

Ton

Marketing Year

Soybean Consumption(Million Metric Ton)

MarketingYear U.S.

SouthAmerica ROW Total

2007/08 51.63 72.78 178.11 229.74

2008/09 48.11 69.42 173.23 221.34

2009/10 50.67 74.17 187.34 238.01

2010/11 48.39 79.75 202.91 251.31

2011/12 48.35 79.08 205.08 253.42

2012/13P 47.21 84.08 215.93 263.15

21

Soybean Meal Consumption, China, EU

2007 2008 2009 2010 2011 2012P0

10,000

20,000

30,000

40,000

50,000

60,000

China (1,000 Metric Ton)

2007 2008 2009 2010 2011 2012p0

10,000

20,000

30,000

40,000

50,000

60,000

EU-27 (1,000 Metric Ton)

Ending Stocks

23

Soybean Prices

• Fall Delivery is $16 to $16.25

• WASDE for 2012/13 marketing year is at $13 to $15

• November 2013 contract at $12.71

24

Summary

• Short consumption while continuing projected strong demand

• Lead to strong prices

25