Farm Talk


December 4, 2007

Soybean price outlook: If $11, why not $15?

What determines the price of soybeans? The quick answer is supply and demand. But the real answer in the short-run is how much someone will pay. So the question may be appropriate this year, “If beans are already $11 per bushel, why can’t they be $15 per bushel and set new all time highs? The analogy to the years from 1973 to 1975 when world prices were adjusting to new international economics makes the question not so ridiculous!

What should soybeans be worth in a world of $100+ crude oil, potentially $1,000 gold, nearly double digit annual income growth rates in China and India representing 1/3 or the earth’s appetites, and with the cheapest U.S. dollar in modern times?

June 5, 1973 was the day the July 1973 soybean futures set the all time high at $12.90 per bushel. That was an extraordinary summer. Even more startling is the fact that the average farm price of soybeans in the previous five crop years from 1967 to 1971 was only $2.63 per bushel. Thus, the $12.90 futures high was nearly five times that average farm price from preceding years. A similar adjustment today would send soybeans from the farm price average of $6.11 per bushel for the 2002 to 2006 crops to $30 per bushel.

Much like today, in 1973 to 1975 prices for all kinds of commodities and goods were being adjusted around the globe. I was a soybean trader for one of the largest crushers in the U.S. and world at the time. There was one highly respected University soybean economist of the era saying beans would not move above $4.00 per bushel, then was forced to redraw the maximum price line at $5.00 per bushel, before finally giving up. I had the rare privileged of being on the floor of the Board of Trade on January 19, 1973 when the lead soybean contract achieved the “unreachable” $5.00 mark and soybean prices did not look back for several years.

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