PEORIA, Ill. — Futures prices, crop insurance and the farm
program are the catalysts driving toward more soybean acreage for 2014.
The U.S. Department of Agriculture’s planting intentions
survey estimates a record 81.5 million soybeans acres this year, and Bryce
Knorr, Farm Futures senior
editor, saw it coming in the weeks leading up to the release.
Knorr opened the Illinois Soybean Association’s Soybean
Summit with his scenario of why up to 81 million acres of soybeans will be
His prediction began with the soybean-to-corn relative
profits ratio of 2.42-to-1 that favored soybeans. The ratio was down slightly
from late 2013, but remained supportive of soybeans over corn.
The Revenue Protection plan also leans toward soybeans for
2014, a switch from previous years.
“Corn was pretty much a slam-dunk guarantee to make money
over the past three years, and in fact if you bought 85 percent RP, you were
guaranteed a profit. That has changed significantly,” Knorr said.
“Soybeans are actually a little bit more profitable than
corn on a nationwide basis at the RP price. But both corn and soybean guarantees
are significantly lower than they have been the past few years. At least we got
part of this rally in February to give us a higher base price.”
Soybeans have a slight profit advantage in Illinois based on
trend adjusted yield with Revenue Projection, according to data from the
Illinois Farm Business Farm Management group.
Although soybeans do have the edge, profits still will be
slim in 2014.
“Nationwide it looks like corn may be breakeven at best.
Soybeans are little better, but still not much better, and that’s going to make
marketing your 2014 crop just a whole lot more difficult,” Knorr said.
Another twist in the farm bill is the Agriculture Risk
Coverage, a program Knorr believes most farmers will be interested in.
“(ARC) looks like it will be more beneficial, particularly
in Illinois and the rest of the heartland, compared to the Price Loss Coverage
program, which is a more traditional farm program aimed at the south,” he said.
“ARC favors corn because it’s based on the last five years
of prices, and corn prices the last five years were relatively higher than
“However, due to the high costs of growing corn in Illinois
at least on paper, particularly because of the high land costs, the farm program
doesn’t guarantee you a profit for corn, and soybeans do a little bit better
than corn, but not much.
“This is why you need to be extra careful with how you
develop your marketing program, particularly in a high-cost state like
“Soybean crush was a little bit weaker than some people
expected in January, but overall the crush has held up pretty well. The margins
are good. The crush margins have started to come down slightly due to the high
costs of the soybeans for one,” the editor said.
Soybean meal has been the leader at least nine of the last
10 years, if not 19 of the last 20 years.
“We crush beans for meal and not oil, and that’s certainly
been the case over the last year or so. That’s starting to change and this is
something we need to be watching,” Knorr said.
“The vegetable oil is starting to attract more attention.
We’re starting to see some traction there that could be positive for prices long
Hedge fund speculators returned to soybean oil early this
year after backing away in the second half of 2013.
“They bought a good chunk of that back since. They’re still
net short, but they’re buying back that position,” Knorr said.
“What we’re seeing in soybean oil is in part a short
covering rally, and that’s why we can’t make too much of it. Basically those
that were short are now covering their positions, and the trick now is, are they
going to get long?”
The soybean market also is gaining strength because of the
dry conditions in Indonesia, Malaysia and other countries where palm oil is
produced. Palm oil competes with soybean oil in the global market.
In addition, the vegetable oil market is concerned about the
long-term outlook that an El Niño will develop in those production areas of
Malaysia and Indonesia this summer for more dry conditions.
The soybean production areas of South America also have seen
weather challenges in the current growing season, but Brazil’s production
On the U.S. soybean demand side, sales were 7 percent above
the USDA’s forecast for the entire marketing year in just the first six months.
“Now there are going to be some cancellations, but it’s an
indication the sales pace is very strong and perhaps too strong, which is why we
have higher prices,” Knorr said.
China is the major player in soybean market, controlling
two-thirds of the world soybean trade, and any major moves by that country would
“The Chinese government says they want to ratchet down
growth to 7, 7.5 percent. It was running at double-digit levels then shrunk back
to 8 percent,” Knorr said.
“The question is, now can they do that successfully without
unintended consequences triggering deeper problems in their economy that might
affect demand? The jury is still out of that one.”
Chinese crush margins have started to shrink on U.S.
soybeans, and the processors are making less money, similar to the past where
buyers purchased all they could and then started running into problems.
“A few years ago, they cancelled soybeans and just
defaulted. Now all these transactions are being handled by international grain
companies. They’ve learned the rules,” Knorr said.
“China’s biggest state-buying agency has started to buy up
grain companies. It looks like they’re going to buy control of Nidera, a Belgium
company that controls the big terminal in Milwaukee.
“They’ve also are going to buy 51 percent of Noble, which is
a big international commodity firm.”
The old soybean crop trend remains bullish in the market,
and Knorr said the trend, based on past tendencies, will continue into the
summer, but new crop could be stickier.
“Based on 80.3 million planted soybean acres, about a 3.5
billion-bushel crop, the carryout doubles and that’s assuming very robust
demand,” he said.
“Right now, the selling price range is about $11.80 to
$12.98, and it started to move into the bottom of that range. Getting to $13 is
going to take some weather or some sort of issues that aren’t in the market
right now. It’s way too early for that type of rally.”
He recommended making some soybean sales now because it is
unknown how long the rally will last
“Even though things look bullish and I have higher price
projections, I still think you should be making sales,” he said.
“You have to do something unless you have no debt, tons of
cash and can just weather anything. You have to do some pricing to cover the
downside risk if this market just turns around and heads south, and Brazil
actually had a big crop and farmers plant a whole lot of soybeans.
“The downside is if you don’t make any sales, you start to
lose money pretty quickly, and when do you start making sales?
“If you don’t make them now at almost $12, when are you
going to start? Maybe you start at $13, maybe you start at $11 or maybe you
start at $10. My average cash price forecast, despite the rosy scenario, is
$10.30. Now that’s 65 cents better than USDA, but it’s still $10.30, which is