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Should we expect to maintain the current price level in the foreseeable future?

Soybean Outlook Cory Walters University of Kentucky Extension Section Crops Outlook AAEA, Pittsburgh July 24-26, 2011. Interesting chart, stocks-to-use is low but price has sky rocketed, why? We have seen stocks-to-use at similar values , for example in 2003, but price is now 77% higher.

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Should we expect to maintain the current price level in the foreseeable future?

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  1. Soybean OutlookCory WaltersUniversity of KentuckyExtension Section Crops OutlookAAEA, Pittsburgh July 24-26, 2011

  2. Interesting chart, stocks-to-use is low but price has sky rocketed, why? We have seen stocks-to-use at similar values , for example in 2003, but price is now 77% higher.

  3. Should we expect to maintain the current price level in the foreseeable future? • Need to answer a few questions to get towards an answer • Have there been production shortfalls? • Increased demand? • From who? • Importing Countries? • Domestic demand? • Is this year’s crop in jeopardy? • Is it speculators?

  4. We had record and near record production in the past three years

  5. World Soybean Production by U.S. and Major Exporters

  6. World Production • Production shortfalls (both domestic and world) do not match current price situation or past four month average price

  7. Use has been flat over the past 3 years

  8. Has there been increased demand from Foreign Countries?

  9. Percent change in Chinese Consumption • No evidence of faster demand growth in China. Maybe since 2008 there has be a significant positive increase in consumption?

  10. U.S. Consumption • No evidence of increased domestic use in the past few years

  11. 2011 Crop Conditions 1) Crop condition is inline with recent year averages 2) Crop progress is slightly behind normal

  12. Since last fall speculators have strongly been net long. This should push prices higher and consequently increase stocks. Have stocks increased? – Yes, from late spring to summer

  13. In times of short supply prices are more sensitive to changes in quantities: p Market demand Different price effects q Same shock

  14. Should we expect to maintain the current price level in the foreseeable future? • Need to answer a few questions to get to an answer • Have there been production shortfalls? DOESN’T APPEAR SO – world supply is above 2009 level • Increased demand? UNCLEAR • From who? • Importing Countries? MAYBE- increase in Chinese imports through 2011 but consumption, through 2008, was not expanding as quickly • Domestic demand? NO – has leveled off

  15. Is this year’s crop in jeopardy? NOT YET- good to excellent rating is in line with last couple of years – Still have lots of weather uncertainty remaining in the growing season

  16. Is it speculators? SLIGHTLY – stocks increased 50 million bushels between April and June. But they have now removed their net long position • In times of short stocks, prices are more sensitive to changes in quantity – thus could experience a spike • Maybe other crops have influenced soybean price through acreage – i.e., the corn market • Currently takes almost 34 times the Kentucky corn crop to meet ethanol demand for one year

  17. Summary • No evidence of a lack of production • No clear evidence of an increase in demand from China • 2011 weather seems to be keeping crop progress and condition within a “normal” range • Low stocks-to-use implies strong price changes • Soybean price keeping up with corn price can lead to price spikes • Have we really encountered at true shortage in world food markets? I don’t think so.

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