More than three billion bushels of US beans need a home. Even more than that will come from South America in a couple months, which will also need a home. And as you know the economic conditions for the “homeless” are rather dismal. Although an aberration in the market has recently allowed producers to enjoy $6 prices, those numbers are fading in the wake of market fundamentals the US Department of Agriculture reports are realities.

The USDA’s Economics Research Service Friday issued its oilseeds outlook, and it’s not pretty. The prior day, USDA’s final 2005 crop production report reduced expected soybean exports by 70 million bushels and raised the carryout next August 31 to more than 500 million bushels—the most in the past two decades. Our surplus beans represent 27% of the nearly 1.9 billion bushels of surplus beans the world currently stores.

Our December 1 soybean inventory, as reported Friday, was a record-high 2,502 million bushels. If exports remain slow, the crop year’s 505 million bushel surplus would be the largest since the 1994 crop, when soybeans averaged $5.48 per bushel.

The US has lost 25% of the soybean export business it enjoyed last year. There are still a couple months that US beans will supply the world market, before a new and less costly Brazilian crop is ready for shipment. But because of surplus beans held by Brazil last fall, the market’s demand for them helped sell an additional 25 million bushels, possibly at a time while Katrina-damaged facilities were unable to meet that demand.

Let’s revisit that price issue. Soybean market watchers have been offering various reasons for the premium prices seen until the market broke a week ago. While some attributed the $6 prices to technical indicators driving up commodity funds, USDA economists explain the phenomenon to forward contracts made last summer and the fact there were fewer soybeans available for cash liquidation. Since fall Loan Deficiency Payments for soybeans were minimal compared to corn, more producers may have the price protection of the marketing loan program available to them. USDA raised its range for the season average price for soybeans to $5.10 to $5.80 per bushel, as a result of the stronger prices in December and early January, calculating that 40-45% of the crop had been marketed at higher levels. With forward contracted beans now coming to market, the December price premium has seriously declined.

And what about the domestic crush? Since soybean prices are a function of oil and meal values, prices have reacted to the higher oil content seen in the 2005 soybean crop. With higher oil content, there has been a reduced protein content; consequently crushers have to buy a few more soybeans for crushing to meet requirements for high protein meal. Subsequently, meal values have remained high, and that has hurt both meal export business, and domestic demand for livestock feed.

The market continues to watch the progress of the South American crop, along with international soybean buyers, who are anticipating sufficient supplies and lower prices. In short, the Brazilian crop has been generally good, but Argentine soybeans have been shortchanged on moisture.

Summary:
US farm bins, commercial elevators, and world grain storage facilities are full of soybeans. And South American farmers are only a few short weeks from harvesting more. Their supplies have caused US export business to weaken, and the domestic crush has not been able to compensate, which means our carryover will be pushed to 20 year highs at the end of the current marketing year.

Stu Ellis
U of I’s the Farm Gate

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