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Todd's Take
Wednesday, August 16, 2017 2:57PM CDT
By Todd Hultman
DTN Analyst

After USDA's Prospective Plantings report at the end of March, it seemed clear that most of the reduced acres in corn and wheat were switching to soybeans in 2017. Even today, USDA stands by its estimate of 89.5 million planted soybean acres in 2017, a new record high for the world's favorite oilseed and possibly headed to another record harvest.

That kind of bearish news would be difficult for most ag commodities to recover from in a year, but in the case of soybeans, that was just one of a long list of bearish concerns. 2016 posted a record U.S. harvest of 4.31 billion bushels from its fourth consecutive year of good weather. Brazil followed with its own record harvest of 4.19 bb (114.0 million metric tons) in early 2017, its fourth record crop in five years.

And we cannot forget President Donald Trump's campaign promises to get tough with China on matters of trade. Throw in tensions with North Korea and it is still fair to wonder if a trade dispute will eventually erupt between the U.S. and the world's largest buyer of soybeans.

So far, however, soybean prices have weathered wave after wave of big harvests and numerous concerns about China and remain the most profitable row crop in the Midwest. As of Friday, DTN's national index of cash soybean prices stood at $8.79, 54% above USDA's production cost estimate of $5.72 for 2016, excluding land expense. By comparison, DTN's national index of corn prices finished at $3.21 Friday, 18% above USDA's similar cost estimate of $2.71 for corn.

As I wrote about a year ago ("The Time Bomb Ticks" at http://bit.ly/…), more and more of the world's population is reaching a level of prosperity that can afford more protein on the dinner table. That ongoing trend is keeping world demand for soybeans well sustained. Not only was Brazil's record harvest in early 2017 unable to take Brazil's FOB soybean prices to new lows versus 2016, demand was so good that Brazil's prices lost their export advantage by the end of April. As of Monday, FOB soybean prices were 26 cents cheaper at the U.S. Gulf than at Brazil's ports, tilting business back toward the U.S. again.

If there is a downside for U.S. producers, it is that they have not yet understood how to maximize the opportunities that soybeans are offering. Rotating fields with corn on a 50-50 basis is a good start, but when it comes to storage time, King Corn still gets the greater share. USDA's quarterly report of March 1, 2017, grain stocks showed 32% of the 2016 corn harvest stored on farms (4.9 bb) versus only 16% of the soybean harvest (668.5 million bushels).

USDA's June 1 update of soybean stocks was similar with producers storing 19% of the 2016 corn harvest (2.8 bb) on farms versus 8% of the soybean harvest (332.5 mb). The temptation to sell the grain that is more profitable in hopes that the less-profitable grain will eventually come around is alluring, but comes at a cost, especially when compounded over many years.

You may recall two articles that I wrote in March about seasonal influences on corn and soybean prices. An update of those studies shows that, since 1993, owning cash corn from Nov. 30 to May 31 each year would result in a gain of $8.60 a bushel, or $86,000 for 10,000 bushels of corn. When we divide by the number of months held, it comes to almost 6 cents per bushel per month, enough for most to show a small gain after storage costs.

Storing soybeans, on the other hand, has been even more rewarding. Owning cash soybeans from Nov. 30 to June 30 each year has shown a gain of $22.13 a bushel, or $221,300 for 10,000 bushels, since 1993. Even though soybeans were held one month longer than corn, the per-month total came to nearly 13 cents a month -- a much more profitable venture after paying storage costs.

Another way to put this is that, for the past 24 years, the decision to store corn instead of soybeans has cost producers 7 cents a bushel per month up to June. The simple reason has been that the world is trying to reward the suppliers of the oilseed that it wants.

I cannot guarantee the numbers will work out the same way for the next 24 years or any particular year. But if we take it one year at a time, we should recognize the importance of soybeans' more attractive profit margins and the consistent message the world is sending. As the last few years have reminded us, every nickel in farming counts, and most of them have been earned with soybeans.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1


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