$20 Soybeans: Dreaming About The Perfect Storm

     I have a long history with soybeans.  For those of you in the United States, that might not seem like too much of an admission.  However, in parts of Ontario, Québec and the West soybeans have not been grown for too long.  I can remember graduating from university with fellow students asking me how to grow soybeans.  I had grown up in the soybean fields of southwestern Ontario as a child, and they seemed to look at me for some type of direction.

At the time, soybean breeding had changed the direction of the crop with more varieties being able to be grown in shorter season areas.  So now in 2012 there are soybeans grown north of Ottawa into Québec and of course in parts of Western Canada.  It’s kind of funny because when I talk to growers in some of these areas, they look at me strange when I talk about hoeing beans and cultivating beans.  That was my whole life until about 25 years old.

That seemed to all change with the ethanol revolution.  I have documented several times how corn has changed the game for many of us.  Not only is corn agronomic-ly superior to soybeans giving us more consistent higher yields, but revenues too.  So over the past few years the hype has being corn, corn, corn and soybeans have been taking 2nd fiddle because of that yield drag.

So along came 2012 with corn acreage predictions of 95.5 Million plus acres in the United States.  I’ve always had a bit of a problem with this because the new crop prices for corn were lower this year compared to 2011.  So why is there such a bigger projected production for corn acres in 2012?  That’s been partially answered because some analysts are expecting over 8 million more acres of crop in the United States in 2012 from the prevent plant acres of 2011.

Thinking about that it is a bit murky.  Who knows what’s going to happen with that flex acreage.  My feeling has always been that soybeans would need to fight for their own acreage.  That process seemed to be very slow up until the Christmas season.  I kept asking myself when it was going to happen.  Market action of the last couple months has answered that.  With South American production and soybeans being affected by drought as well as higher export sales of the United States, soybean prices have been on the march.  We are a good $3 higher for soybeans since Christmas.

This bodes well for soybean producers.  The harder part is always producing those soybeans at a yield level, which is reflective of 2012 technology.  For instance, when I speak on the markets across Ontario, I often tell my audience I have 40 bushel per acre written on my forehead.  I say this because boosting soybean yields is a very difficult process for me.  Part of the problem may be a short rotation of soybeans on land, which has grown them for 60 years.  It is the quintessential challenge of every farmer in southwestern Ontario to somehow find a way to get consistently high soybean yields.

So in the meantime, we enjoy much higher soybean prices.  We now have the nearby soybean contract at approximately $13.68.  What I find particularly impressive in the soybean complex now is what my colleague, John Sanow wrote about in his column this afternoon.  In his piece, John writes about how the July-to-November soybean futures spread remains at a strong inverse.  The November-to-January spread is working toward an inverse while the January-to-March and March-to-May spreads see their inverses strengthening. That’s about as impressive as I can remember the soybean complex being.  With South America losing production and the Chinese seemingly intent on increasing export sales, it’s almost shaping up as a perfect storm for beans.

So it is a good thing for soybeans that prices are higher.  However, it must be said that soybean prices have to be higher for them to remain relevant in many farm budgets.  For instance this year on my farm I am almost sure before I even planted a single seed that I have a much better chance of very high corn yield versus a high soybean yield.  For instance I had one of my highest soybean yields ever last year in 2011 and to repeat that is hard for me to imagine even as I’m set to challenge every farm management nerve ending I have.  So in lieu of that, I need higher soybean prices just to keep me even with corn.

Does that mean I’m dreaming about $20 soybeans?  Yes it does.  If you have read this column for over 25 years you will know that I’ve said that a few times.  However, the salient word is dreaming and not necessarily selling.  Let’s just say it doesn’t surprise me the soybeans have taken off.  They’ve been negated vs. corn for several years now.  They didn’t deserve it.  Maybe now, with production problems in South America and future spreads inverting, a perfect storm may lie ahead.