Long-term grain storage has not worked very well in recent years and it doesn't look good for 2000 crop soybeans still in storage. Thursday's (2-8-01) USDA Supply and Demand Reports again contained negative news for soybean prices.

Both US and World ending soybean supplies are expected to increase--always a negative factor for prices. South American production increases were expected and it will be large with record production anticipated from Brazil. This South American production will soon provide export competition and may have contributed to one the report's surprises--USDA lowered US export projections to below last year. This came in spite of current US export commitments that are running ahead of last year! The other surprise was a decrease in domestic crush. US ending stocks are now expected to increase to 345 million bushels. That compares to 1998-99's ending stocks of 348 million bushels and the year that prices fell to a twenty-six year low in May!

Thursday's market reaction to the reports was sharply lower prices. Old crop futures months closed eleven to more than thirteen cents lower, near the bottom of the day's trading ranges. This sharp price decrease follows only very limited price strength on positive export news a few days ago, which doesn't suggest a market looking to rally.

Basis also continues to be very weak. While some locations have shown signs of strength, Central Missouri average cash bids continue to reflect a basis that is weaker than the weak basis trends of the past two years! In spite of an expected strong total demand, a weak basis suggests a weak cash supply and demand situation. Cash demand doesn't appear ready to help pull prices higher.

Increasing supplies, downward demand adjustments and a weak cash market--discouraging news if you have stored soybeans! The normal seasonal price pattern is for lower prices into February and then a spring rally, but the current situation doesn't offer much hope of a significant seasonal rally in the spring. Meanwhile, storage costs continue to add up and the risk of loss increases, especially if you've already claimed the LDP.

Short of unexpected demand, about the only remaining fundamental factor left to turn price around is the weather. If the South American crop does come in as expected, market attention will turn toward US crop production prospects as our production season begins. In spite of the negative demand adjustments, use is still very large and any production problems would quickly influence prices. However, remember that continuing to store soybeans in hopes of a weather market is really betting on the weather. If you have stored soybeans, it may now be a question of whether to bet on the weather to fuel a significant spring rally or accept a storage loss and sell before it gets worse--not a good situation to be in or one with any easy answers. It may come down to how much loss and/or risk you are willing to accept.  --Melvin

Decisive Marketing - February 9, 2001
http://outreach.missouri.edu/agconnection/DCT/DM010209.html -- Revised: April 20, 2004
breesm@missouri.edu