By DOUG SCHMITZ

Iowa Correspondent

URBANA, Ill. — With recent soybean prices rallying on increased uncertainty in South American production and a weaker dollar, prices in the 2017/18 marketing year are following a similar pattern to last marketing year, which presents 2018 soybean sales opportunities.

That’s according to Todd Hubbs, University of Illinois agricultural economist, who said new-crop cash bid prices for harvest in central Illinois recently ranged between $9.70-$9.80. “A prudent marketing plan for soybeans this year may possess some selling of new-crop soybeans in this price rally,” he explained.

Last year, Hubbs said, November 2017 soybean futures price saw an early December rally that weakened over the holiday period and then moved higher in late January on potential weather issues in South America and strong soybean exports.

“November 2018 soybean futures price is following a similar pattern, with prices 20 to 30 cents lower than last year,” he said. “The 2017 November soybean contract stayed well above $10 until the beginning of March and then declined substantially until a strong weather rally in July.

“Despite the similarities in South American production, soybean export levels are not as strong this year and an increase in soybean acreage in 2018 sets up another large production year.”

According to a survey by Bloomberg News, U.S. farmers are projected to plant the most soybeans ever (90.69 million acres) and reduce corn acres in 2018 to 90.12 million acres. Currently, USDA forecasts Argentine soybean production at 2.06 billion bushels for the 2018 crop year, Hubbs said.

“Numerous reports out of Argentina indicate substantial dryness with subsoil moisture issues in many regions may reduce production by 140 (million) to 150 million bushels,” he said. “The USDA lowered Argentinean soybean production 36 million bushels in January.

“Current weather conditions in Brazil indicate strong production prospects in 2018, despite some recent issues with too much rain in many growing regions.”

Rich Nelson, Allendale, Inc. chief strategist, said, “Some traders’ current mindset is a drop in the USDA’s production number for Argentina, from 54 million (metric) tons (mmt) to 50, would equate to 147 million bushels – or a drop from 54 mmt to 47 mmt would equate to 247 million bushels.

“Bulls would like to suggest this drop in production will go right onto our U.S. export deficit. Don’t forget Brazil’s soybean production number is growing, as early yields are 3 to 10 percent above last year’s record.”

Hubbs suggested in his weekly update (Feb. 19) that 2018 U.S. average price could be $9-$9.20. “I think he’s saying that with the assumption that 2018 weather in South and North America will be normal,” explained Chris Hurt, Purdue University professor of agricultural economics. “However, markets already know that Argentina does not look normal at this point.

“When you factor in some of the Argentina production losses being mentioned, then I would put the U.S. average price for the 2018/19 marketing year more like $9.40 to $9.60. So, with current cash pricing opportunities above $9.50 in Iowa and around $10 in the Eastern Corn Belt, current cash prices are a reasonable places to start new-crop pricing.”

On November 2018 futures, Hurt said the current $10.30 is the first pricing point, then scaling up to $10.50 and $10.70, $11 and $11.50. “Much more damage will need to occur in Argentina to move November futures to the higher levels,” he said. “But the odds that November futures could reach $11 or higher have clearly increased (this is not an outlook statement, just simply fact).

“There are a variety of ways to price new crop on this rally. Most will elect to use forward cash contracts. Those could be for harvest delivery or for delivery out of storage in January 2019 to July 2019.”

Hurt said another good way to price is by selling futures (futures hedge). “Generally, one would sell the November futures now and then wait until late summer to make the final decision about whether or not to store and how far to roll the short November futures to later delivery months. For those farmers who do not want to do their own futures hedging, maybe because they do not want to meet potential margin calls, they can do hedge-to-arrive contracts at their buyers.”

He said Purdue budgets are currently showing “rotation soybeans” have an economic advantage of about $60 per acre over “rotation corn” on low- and average-quality Indiana soils.

“The advantage drops to about $45 per acre for beans on our high-quality land of 200-plus bushels,” he said. “A strong financial incentive to plant somewhat more soybean acres.”

Overall, Hubbs said the possibility of a strong downward price movement through 2018 is substantial, much like last year. “Despite the potential for production issues in Argentina and Brazil, the South American crop is weeks away from final resolution to these weather issues,” he noted.

“The possibility of an increase in soybean production in the U.S. and large soybean ending stocks projections hang over the rest of this year.”

He said the March 29 USDA Prospective Plantings report will provide the next major indication for soybean acreage for 2018. “With so much production uncertainty in the U.S. and South America over the next few months, the current bids for 2018 harvest delivery provide an opportunity for locking in prices on new-crop soybeans.”