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Illinois AgriNews - June 2005
 
History of High Priced Soybeans
Darrel Good
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
Soybean prices moved sharply higher from mid-May through mid-June. The average spot cash price in central Illinois increased by $1.12 and November 2005 futures increased by $1.32 from May 13 through June 17. During that same period, November futures moved from a $.05 discount to July futures to a $.17 premium. Several fundamental factors supported the month long rally, including the higher than projected rate of consumption. Year-ending stocks will be more than adequate, near 300 million bushels, but well below the early season projections that were as high as 460 million bushels. Threatening weather in China and India was also an issue. Much of the June rally, however, was fueled by concerns that the 2005 US crop would fall short of the USDA's trend line projection of 2.895 billion bushels, resulting in a significant tightening of stocks during the year ahead. Smaller crop expectations stemmed partly from ideas that US soybean acreage fell short of March intentions due to increased corn acreage and some unplanted area in the wet areas of the northwest portion of the production belt. The USDA's June 30 Acreage report will shed additional light on actual plantings.
In addition to smaller acreage, higher prices were generated by threats to the growing crop. While the USDA's weekly rating of crop conditions showed the 2005 crop to be in about average condition through the first two weeks of June, the market worried about the prospects for a pattern of hot, dry weather developing and extending into July. In addition, tropical storm activity raised concerns about the spread of soybean rust. With November futures approaching $7.50 per bushel, it is calculated that the market had built in a crop about 100 million bushels smaller than the USDA projection based on March planting intentions and a trend yield.
On the surface, the May to June rally in soybean prices appeared to be “too much, too early”, given the minimal damage to the crop which had already occurred and in relation to the anemic rally in corn prices. Yet, the move above $7.00 sparked talk that prices would go to $8.00 or higher, creating some interest in the history of high priced soybeans. That history can be sliced in a number of ways. For the 1973 through 2004 contracts, November futures traded above $7.00 twenty times (62.5 percent), including all 12 years from 1973 through 1984. In 11 of those 20 years, November futures traded above $8.00, with the rally falling short of $8.00 in 9 years. The November contract reached or exceeded $8.00 in only 3 of the 16 years from 1989 through 2004. The contract has exceeded $10 only once, in 1988. Of the 20 years that November futures exceeded $7, the high came in 7 different months, with half occurring in June, July, or August.
The cash price of soybeans in Illinois exceeded $7 in 18 of the 31 years from 1973-74 through 2003-04. The price exceeded $8 in 11 of those 18 years. In the 18 years of prices above $7.00, the high occurred in 9 different months. A third of those highs were in the spring of the year, which obviously was not the case in 2005. The most occurrences of a high that exceeded $7 (5) were in July. |
