Feed Management - May/June 2009

Spot cash soybean prices in central Illinois

$/bu.

3 9/7/06

3/7/07

9/7/07

3/7/08

9/7/08

3/7/09

in corn futures and 25 in soybeans.”

Corn prices are likely to remain near current levels, in the $4/bu range between now and 2010, with soybean meal $250/ ton, says economist Paul Aho.

The reason for the crash in grain prices late last year, Aho says, was largely the dramatic decline in oil prices that nobody saw coming. This was mainly due to the downturn in demand caused by the world economic recession. Another reason for the decline in grain prices was the increase in global supplies, particularly higher wheat supplies in Australia. Yet another factor for the decline in grain prices was “the flight of speculators from the market,” he says.

Soybean prices have declined along with corn.

futures, Good says a $100/metric ton trading range — $230 to $330/metric ton — is possible, and notes that “we’ve seen $75 already.” Good thinks it likely that volatility on soybean meal, like corn, will continue. “There’s so much uncertainty that prices could move strongly in either direction.”

In Gary’s view, “this recession is going to last a lot longer than the one in the 1970s I don’t see any major bull move in commodities in the next several years.” Gary accurately predicted in July that prices would plummet as credit tightened, Bloomberg says.

Also agreeing that soybean complex prices will remain under pressure is University of Tennessee economist Daryl Ray. Soybean meal prices are coming down and are likely to go lower in the months ahead, he said at an American Feed Industry Association meeting. And next year, “a large global soybean crop is probable. Protein prices could be considerably lower.” He says that oilseed acreage is increasing substantially in developing nations and that’s likely to continue. “The United States is flat, but competition from developing nations is increasing.”

Ray says that food is a national security issue for many nations and that’s likely to continue, thus propping up his view that soybean production is likely to grow more rapidly than demand. “Nations want to feed their population.” For example, he notes that former Soviet bloc countries such as Ukraine are ramping up their grain and oilseed production.

Production rising faster than demand

What’s not considered, Ray says, is that “except for short periods, (global) production is rising faster than demand.” He adds that “excess capacity in the future will be a worldwide problem.” As a result, Ray says, “we should expect continuing periods when agriculture cannot self-correct. We don’t see the self correction that we see in other

(industrial) sectors.” Ray continues that the “bump in ethanol is a temporary thing. It can’t continue to go up forever.”

Brock says in his newsletter, “it’s ironic that many people now view $8.50 soybeans and new-crop corn near $4 as low prices. Those prices are low only when compared to last year’s highs. Look at long-term corn and soybean charts and you will discover that $8.50 soybeans and $4 corn are toward the top of their historical price ranges. Out of the 290 months since 1985, there have been only 14 monthly closes above current prices

Prices linked with oil

In Aho’s view, grain prices have become linked to oil prices, now that 30% of the U.S. corn crop is used for ethanol — and the corn-energy link is likely to continue.