HardAssetsInvestor

Written by Julian Murdoch  |

February 08, 2010

The Soybean Farmer’s Bet

Details

With record inventories and record harvests, it's a tough time to be in soybeans right now. But are farmers making the right bets?

• What's behind the massive harvest?
• Why prices have collapsed
• How farmers are dealing with record yields

 

On Friday, soybeans closed at just $9.17/bushel:

 

 

And that's up from the four-month lows of $9/bushel hit earlier in the week. In fact, on Feb. 4, soybean prices dropped so low that Don Roose, the president of U.S. Commodities Inc., told Bloomberg, "Farmers have stopped selling.

Roose continued, "We have reached an area of value where end-users want to accumulate inventories. They are going to have to bid more to pry some bushels from farmers."

Holding on to inventories until prices rise is a risky move, but are farmers making a smart bet?

 

A Record Harvest

Soybean farmers started harvesting back in October, when the price hovered around $10 a bushel, with some of the crop selling at even higher prices. But now that the harvest is done and prices have dropped, farmers are choosing to sit on their unsold inventories rather than take them to market.

Their bet is twofold: They're hoping that either something terrible will happen to the South American crop (which goes to harvest in March) or planting problems this coming spring will make end-users nervous and more willing to pay higher prices for this year's crop.

And what a crop it was. This year's harvest weighed in 13 percent higher than last year's, for a record of 2.261 billion bushels, or 91.472 million metric tons. But it wasn't just high production driving the harvest; this year's crop also experienced record yields (indicated by the purple dots on the chart below):

 

 

See that final dot for 2009, at 43.3214 bushels/acre? That's a heckuva lot of soy being squeezed out of those fields.