Soybean South :: From the Editor

 - From the Editor -

Limit Up!
USDA’s October Surprise

By Carroll Smith

The Oct. 8, 2010 World Agricultural Supply and Demand Estimates (WASDE) and Crop Produc-tion reports were certainly a “What had happened was” moment for USDA. In considering the content of the September reports, I think the department was as surprised as the rest of us by the numbers that it published in October.

Soybean production dropped from the Septem-ber estimate of 3.483 billion bushels to 3.408 billion bushels. Projected 2010-11 ending stocks came in at 180 million bushels compared to September’s estimate of 265 million. Then USDA proceeded to increase its 2010-11 price range forecast by 85 cents, which pushed soybeans into the $10 to $11.50 range.

Other commodities, such as corn, rice and cotton also experienced limit-up trading. However, as reported in the Louisiana Farm Bureau’s “President’s Column” on Oct. 11, David Bollich, a grain marketing specialist with the Louisiana Farm Bureau Marketing Association, noted that the biggest surprise in the report was soybeans.

“It’s hard to find bad news in the report,” Bollich says. “It’s just good news all around. Looking at the soybeans, we thought we’d see an increase in yields, maybe offset by some loss in acreage. Instead, we saw a decrease in yield and in acreage, so we’ve knocked off a good 100 million bushels of the carryout, so it’s looking good there.”

Melvin Brees, the market/policy Extension associate, FAPRI, University of Missouri, also weighs in on the October surprise in his latest “Decisive Marketing” column.

“It seems like sometimes you just can’t win when you try to do things ‘right.’ Pre-harvest sales are supposed to capture the best prices, right? Making sales when prices are near the top of the USDA’s projected prices range seems like a good idea, doesn’t it? Doesn’t locking in a profit on expected yields make sense? Won’t selling before prices go into a seasonal decline capture good prices? If you did what seems right with pre-harvest sales, how come you missed out on more than $2.00 in soybeans?

“…For most of the growing season, it appeared that new crop prices had peaked in early January, and Decem-ber futures prices continued to drift lower into late June. Throughout the summer, good crop ratings suggested another huge crop was on the way.”

Although the October turn of events is frustrating in many cases, Brees reminds producers that following the marketing “rules” is still a good idea.

“Before you beat yourself up too much, remember that these are very volatile markets filled with uncertainty,” Brees says. “It is impossible to foresee everything that may influence production, demand or prices. History shows that disciplined marketing and taking advantage of profitable prices is usually sound risk management. But sometimes the unexpected happens. Earlier sales did protect profits, and that is important to business survival.”

The Missouri market analyst also encourages producers to learn how to use options that “can increase marketing flexibility and help manage volatile and uncertain markets.”

At any rate, no matter what kind of marketing strategy you use, it’s always nice to see high commodity prices across the board!