Soybean prices still climbing

The low yields in South America push up U.S. prices.
Thursday, February 26, 2004 | 12:00 a.m. CST; updated 8:16 a.m. CDT, Friday, July 18, 2008

Analysts were surprised last week when the price of soybeans jumped to $8.69 per bushel, the highest price since 1997 for the No. 1 cash crop in Missouri. They’re even more surprised this week.

Lower-than-expected yields in South America, where it’s harvest season, helped push the U.S. soybean price to $9.33 a bushel on Wednesday.

“Eight dollars is unusual, but this is unusually unusual,” said Abner Womack, co-director for the MU Food and Agriculture Policy Research Institute.

In 2002, the average price of soybeans in Missouri was $5.40 per bushel.

John Kruse, a research associate at FAPRI, said forecasts for a total yield of 60 million metric tons of beans in South America missed the mark by 3 million metric tons, pushing up the price of U.S. beans.

“Three million tons is not a huge difference, but it causes traders to speculate the worst, pushing prices up,” Kruse said.

While FAPRI is not offering estimates on how high soybeans prices might go, Kruse said he’s seen predictions as high as $11.50 per bushel, which would set a record.

“This is like drinking water out of a fire hose,” Womack said. “As long as the pressure of demand stays on supply, the prices will increase. When that pressure stops, prices will fall.”

South American soybeans suffered from a fungus known as rust. Rust does not exist in the United States, but the U.S. Department of Agriculture predicts it will hit within four to five years.

South America also received considerable amounts of rain in the past week, making it difficult for farmers to harvest their crop before the fungus hit. “Their crop reduction is adding more fuel to the fire in the U.S.,” Womack said.

Womack sees another factor for the high prices: a lack of government intervention in the soybean market. In the past, the government played a key role in price fluctuations by buffering the markets. These days, he said, the market is simply “reacting to trends and market signals with no government stock activity.”

Soybean prices on the futures market are also higher than FAPRI forecast. Farmers can sell their unplanted fall crop for $7.32, nearly $2 higher than the $5.65 FAPRI predicted.

“This is unusually rare, and will allow farmers to make a profit,” Womack said. “The challenge there is risk involved; the crop has to be produced.” To minimize risk he suggests only selling part of the crop on the futures market.

“They might have $9 beans now, but farmers could wake up tomorrow and see $8 prices,” Womack said. “This market is high risk and very volatile. ... The market can decline before they blink, so take advantage of it.”

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