Soybean Market Situation And Outlook 2008 Southern Ag. Outlook Conference Atlanta, Georgia September 24, 2008 Kurt M. Guidry Professor Department of Agricultural Economics Current Issues Despite Increased Production, Stocks Expected To Remain Tight Weaker US Dollar Has Supported Export Demand Despite Higher Prices While Lower, World Stocks Still At Comfortable Levels Speculative (Non-Commercial ) Activity Continue To Help Shape Market Historically High Prices Persist (Basis Levels Remain Weak) Prices Remain Volatile, Downward to Sideways Trend To Harvest Longer Term Prices Likely Shaped By Crop Acreage Fundamental Supply and Demand Conditions U.S. Soybean Supply and Demand 5 Year 2007/08 2008/09 Average Sept. 2008 Sept. 2008 5 Year Avg. Last Year Last Month Planted 72.0 63.6 74.8 3.95% 17.61% 0.00% Harvested 71.0 62.8 73.3 3.21% 16.72% 0.00% Yield 40.6 41.2 40.0 -1.48% -2.91% -1.23% Begin Stocks 314 574 140 -55.40% -75.61% 3.70% Production 2,883 2,585 2,934 1.78% 13.50% -1.31% Total Supply 3,203 3,169 3,084 -3.73% -2.68% -1.03% Crush 1,717 1,815 1,785 3.95% -1.65% -1.65% Exports 1,041 1,155 1,000 -3.91% -13.42% 0.00% Demand 2,897 3,029 2,949 1.78% -2.64% -1.04% 306 140 135 -55.92% -3.57% 0.00% 10.39% 4.62% 4.58% -55.93% -0.96% 1.05% $7.06 $10.15 $12.35 74.83% 21.67% 0.82% End Stocks S-T-U Price ---------- Percent Change ---------- Source: USDA, World Agricultural Supply and Demand Estimates, September 2008 Stock Situation Remains Positive And Points To Continued Strong Prices Soybean Prices and Stocks-To-Use (1980 - 2008) $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 y = -13.32x + 7.9372 $2.00 $0.00 0.00% 2 R = 0.1998 5.00% 10.00% Series1 15.00% Linear (Series1) 20.00% 25.00% 30.00% Soybean Prices and Stocks-To-Use (2005 - 2008) $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 y = -39.581x + 12.952 R2 = 0.8525 $2.00 $0.00 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% Series1 Linear (Series1) Despite Increased Production in 2008, Solid Export Demand Due To Weaker Dollar and Strong Domestic Crush Expected to Keep Stocks Tight U.S. Currency Exchange Rate – Selected Countries Brazil Japan Have We Seen the End to Falling Dollar ? China Source: St. Louis Federal Reserve Mexico U.S. Soybean Exports 1,200,000,000 1,000,000,000 Bushels 800,000,000 600,000,000 400,000,000 200,000,000 Week 08/09 Exports Down 32% From 07/08 Source: USDA, Foreign Agricultural Service 5 Year Average 2007/08 2008/09 52 49 46 43 40 37 34 31 28 25 22 19 16 13 10 7 4 1 0 Sharp Increases in Biodiesel Production Providing Support For Soybean Oil Source: National Biodiesel Board: http://www.biodiesel.org US Soybean Crush 170,000 160,000 1,000 Bushels 150,000 140,000 130,000 120,000 110,000 100,000 90,000 r h 04 b e / rc 3 a 0 em M 20 ec D ne u J r h 05 b e / rc 4 a 0 em M 20 ec D ne u J r h 06 b e / rc 5 a 0 em M 20 ec D Month Source: USDA, Economic Research Service ne u J r h 07 b e / rc 6 a 0 em M 20 ec D ne u J r h 08 b e / rc 7 a 0 em M 20 ec D ne u J World Supply and Demand Increases in US and South America Production Expected to Bring Increases In World Stocks While Stocks Are Down From High Two Years Ago, Still Above Long Term Average While Prices Remain Strong, Fundamentally, World Supply and Demand Situation Still Comfortable World Soybean Supply and Demand 250,000 70,000 60,000 200,000 150,000 40,000 30,000 100,000 20,000 50,000 10,000 0 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Marketing Year Total Production Source: USDA, Foreign Agricultural Service Total Consumption Ending Stocks 2008/09 1,000 Metric Tons 1,000 Metric Tons 50,000 Soybean Production, Selected Countries 90,000 1,000 Metric Tons 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Marketing Year Argentina Source: USDA, Foreign Agricultural Service Brazil United States Soybean Exports, Selected Countries 35,000 1,000 Metric Tons 30,000 25,000 20,000 15,000 10,000 5,000 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Marketing Year Argentina Source: USDA, Foreign Agricultural Service Brazil United States China’s Activity In Soybean Market Is Large Factor In US Export Performance China Soybean Purchases 40,000 1,000 Metric Tons 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Marketing Year China Imports Source: USDA, Foreign Agricultural Service China Imports From US Short Term Price Movement Likely Determined By Progression of Crop to Harvest (And Speculative Activity) Source: DTN AgDayta Source: DTN AgDayta Without Weather Concerns, Expect Sideways To Downward Trending Market To Harvest Speculative Activity And Spillover Influences From Outside Markets Could Alter Trend Month Source: USDA, National Agricultural Statistics Service 5/14/2008 1/14/2008 9/14/2007 5/14/2007 1/14/2007 9/14/2006 5/14/2006 1/14/2006 9/14/2005 5/14/2005 1/14/2005 9/14/2004 5/14/2004 1/14/2004 9/14/2003 5/14/2003 1/14/2003 9/14/2002 5/14/2002 1/14/2002 Dollars Per Bushel U.S. Soybean Prices 14 12 10 8 2002-07 Avg 6 4 2 0 nM 02 ay Se 02 p0 Ja 2 nM 03 ay Se 03 p0 Ja 3 nM 04 ay Se 04 p0 Ja 4 nM 05 ay Se 05 p0 Ja 5 nM 06 ay Se 06 p0 Ja 6 nM 07 ay Se 07 p0 Ja 7 nM 08 ay Se 08 p08 Ja Dollars Per Ton U.S. Soybean Meal Price, Central Illinois 450 400 350 300 250 200 150 100 50 0 Month Source: USDA, Agricultural Marketing Service nM 02 ay Se 02 p0 Ja 2 nM 03 ay Se 03 p0 Ja 3 nM 04 ay Se 04 p0 Ja 4 nM 05 ay Se 05 p0 Ja 5 nM 06 ay Se 06 p0 Ja 6 nM 07 ay Se 07 p0 Ja 7 nM 08 ay Se 08 p08 Ja Dollars Per Hundredweight U.S. Soybean Oil Price, Central Illinois $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Month Source: USDA, Agricultural Marketing Service Soybean Futures Contract Prices – September 22, 2008 Source: DTN AgDayta Soybean Futures Prices – Long Term Trend Source: DTN AgDayta Soybean Futures Prices – Seasonal Index Source: DTN AgDayta Soybean Futures Contracts – Commitment of Traders Reduction in Speculative Position Has Helped Soften Market – Is A Reversal In This Trend Going To Happen As A Result Of Outside Market Influence? Source: DTN AgDayta Basis Levels Remain Historically Weak: Departure of Futures From Fundamentals And Increased Transportation Costs Source: USDA, Agricultural Marketing Service Longer Price Trend: Will We See Another Battle For 2009 Acres? Tight Stock Situation For Both Corn And Soybeans Suggest Both Markets Will Look To Attract Additional Acres in 2009 Soybean Price Needed For Equal Returns Above Variable Costs With $4.00 Corn ----------------------------- Soybean Variable Cost Per Acre ----------------------------Corn Variable $/Ac $140 $150 $160 $170 $180 $190 $200 $ 350 $9.57 $9.81 $10.05 $10.29 $10.52 $10.76 $11.00 $ 400 $8.38 $8.62 $8.86 $9.10 $9.33 $9.57 $9.81 $ 450 $7.19 $7.43 $7.67 $7.90 $8.14 $8.38 $8.62 $ 500 $6.00 $6.24 $6.48 $6.71 $6.95 $7.19 $7.43 Soybean Price Needed For Equal Returns Above Variable Costs With $5.00 Corn ----------------------------- Soybean Variable Cost Per Acre ----------------------------Corn Variable $/Ac $140 $150 $160 $170 $180 $190 $200 $ 350 $13.21 $13.45 $13.69 $13.93 $14.17 $14.40 $14.64 $ 400 $12.02 $12.26 $12.50 $12.74 $12.98 $13.21 $13.45 $ 450 $10.83 $11.07 $11.31 $11.55 $11.79 $12.02 $12.26 $ 500 $9.64 $9.88 $10.12 $10.36 $10.60 $10.83 $11.07 Soybean Price Needed For Equal Returns Above Variable Costs With $6.00 Corn ----------------------------- Soybean Variable Cost Per Acre ----------------------------Corn Variable $/Ac $140 $150 $160 $170 $180 $190 $200 $ 350 $16.86 $17.10 $17.33 $17.57 $17.81 $18.05 $18.29 $ 400 $15.67 $15.90 $16.14 $16.38 $16.62 $16.86 $17.10 $ 450 $14.48 $14.71 $14.95 $15.19 $15.43 $15.67 $15.90 $ 500 $13.29 $13.52 $13.76 $14.00 $14.24 $14.48 $14.71 Current Futures : Dec 09 Corn @ $5.96, Nov 09 Soybean @ $11.95 At Current Prices For 2009, Would Seem To Favor Corn At Average Yields Will Soybean Prices Have To Increase Relative To Corn Prices To Maintain Acres ? Summary Historically Strong Prices Fundamentally, Would Expect Prices To Trend Slightly Down or Sideways Into Harvest and Then Improve As Battle For 2009 Acres Begin Tight Stocks Will Keep Market Volatile Increased Volatility = Increased Marketing Costs and Perhaps Limited Marketing Alternatives Fundamentally, World Stocks Still Comfortable – Will That Limit Upside Potential ?