In a year of low commodity prices, soybean have offered many producers the opportunity for profitable budgets. The decline in wheat and feed grain prices, coupled with relatively higher returns offered by soybeans, have led many producers in the Southwest to consider the crop.
Years of above average production have affected soybean prices, just as they have other grain markets, but the difference lies in the percentage change in prices.
Since recent highs set back in 2012, hard red winter wheat and corn prices have fallen by roughly 60 percent of previous highs, while soybean prices have fallen by 40 percent of their previous levels. Because soybeans have retained a higher percentage of their previous value, their returns are more attractive to producers.
Future strength in soybean prices will be determined by the amount of new production in 2017, the strength of exports, and other oilseed markets. In the November 2016 World Agricultural Supply and Demand Estimates, the USDA projected that the U.S. will produce 4,361 million bushels in 2016, which is up 435 million bushels over 2015 production estimates. The projection comes from a 2016 all-time record for production at 52.5 bu./acre.
OPPORTUNITY FOR PROFIT
Moving these large supplies may be difficult. Soybean crush was reduced by 20 million bushels to 1,930 million bushels, and soybean meal export expectations have been reduced.
Soybean ending stocks are expected to increase by 85 million bushels from previous estimates, to 480 million bushels for 2016.
Recently, soybean prices have surged on unexpected news from the EPA in the Renewable Fuel Standard for 2017. Total renewable fuel volume is expected to increase, which could encourage more domestic use of soybeans.
Despite increased production, the USDA revised its estimated season-average soybean price to $9.95/bu., up from $8.45/bu. This positive move in prices is not lost on producers who wish to adopt a cropping enterprise that has an opportunity for profit.
Producers with soybeans still in storage were presented with an excellent marketing opportunity as 2016 came to a close. Soybean prices increased from $9.84/bu. Nov. 1 to a high of $10.65/bu. Nov. 28, and finished the month at $10.32/bu. Nov. 30.
A 48-cent increase on the month was a welcome gift in the face of record high U.S. production in 2016.
The decision to continue planting or adopting a soybean production system relies heavily on price. The current market dictates that a producer carefully construct enterprise budgets to determine breakeven price and yields.
Producers must also focus on increasing production and delivering a quality product to the elevator. A producer can help manage price risks by developing a marketing strategy and locking in a price above breakeven.
(Mark Welch is Texas A&M AgriLife Extension Economist at College Station. Trent Milacek is Northwest Area Agricultural Economics Specialist at Oklahoma State University at Enid.)