Soybean Surplus Defines Markets

Posted by on April 17, 2019 in Blog, Featured, News & Announcements | 0 comments

By:  Carl C. Stafford
Senior Extension Agent

How does this inform us today on the risky business of agriculture? In terms of soybeans, recent reports show that we have a record supply in storage.

Risky business agriculture, riskier still to talk about economics, but let us give it a go.   Dr David Kenyon, retired Agriculture Economist, Virginia Tech, a speaker in the 90’s and 00’s,  regularly addressed the Corn and Soybean convention held in the heart Virginia grain country.  He left me with this understanding.  Ninety percent of price movement can be predicted by carry over supplies.  When evaluating the potential for market movement, he would always include carry over grain numbers.  If carry over was high, it could explain most of expected negative price movement and so on.

How does this inform us today on the risky business of agriculture?  In terms of soybeans, recent reports show that we have a record supply in storage.  Looking back, we almost never have such a big national supply on hand.  The chance of soybean price moving up would in Kenyon’s words, be dependent on the 10% of other factors not related to carry over.  So, before a bad prediction is made, let us turn to other evidence currently underway in the American farmer’s experience.

Many readers know of the incidence of flooding in the Mississippi river basin.  The effects of this natural disaster are being felt now and will continue to amplify in impacts, months ahead.  Delays in planting are expected, if at all in the hardest hit areas.  Late planted crops tend to yield less; unplanted crops yield not at all. In short, fewer bushels are expected from the areas hit by these spring floods.  Are these big production areas, you bet?  Still though, other regions can have a record year then here comes the “freight train” of American agriculture.  Robust in the least and capable of expanding when needed.

Our agriculture has this marvelous ability to produce and we depend upon our inevitable surplus moving into areas of deficient supply (think other countries), taking away the burden of the carry over here at home. There have been interruptions in the normal movement of supply, soybeans, apples, and pork to name some. The dairy industry struggles too with surplus and using Kenyon’s approach, explains why milk fails to move in the right direction for dairies.

Those who need farm commodities such as livestock feed, find when normal supply channels are interrupted, they still need to feed their animals and seek other sources.  Our experience in the past may predict the future here as we quickly lost markets in the 80’s when a short-lived U.S. supply interruption occurred in the eastern Pacific Rim. Ag lenders express concern about this happening again, the shifting in supply sourcing and markets drying up.  Evidence suggests South America continues to be big competition in grain markets, soybeans in particular and similar potential is seen in the Black Sea regions of Europe.

A return to normal is a positive way out of some troubles.  The risky business of agriculture is in the midst of its season of optimism, spring is rising and we move forward with determination, with plans made for success and from success proven by generations and refined by the next generation – think technology as our future farmers contribute their skills to modern farming.

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