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Outlook Uncertain for Soybean Crops

January 29, 1999

WICHITA, Kan. (AP) _ The hog market is in crisis. Beef is not faring much better. Wheat prices remain low. Now farmers have another worry: an uncertain outlook for soybean crops.

Brazil’s economic problems and its sudden currency devaluation _ coupled with an Agriculture Department crop report in January showing the U.S. soybean crop was the largest in history _ are bad news for the nation’s soybean growers, said Bill Tierney, a grain market analyst at Kansas State University.

After the USDA reported in January a record 2.76 billion bushels in U.S. soybean production for 1998, the market set new lows for both July and November soybean futures.

``Without a doubt, much of the market’s reaction was the result of the Brazilians’ cheaper real _ which is their equivalent of our dollar,″ Tierney said. ``The market actually was expecting an even bigger U.S. crop. But Brazil is a major world competitor in soybeans.″

Brazil always prices its exports just under the U.S. price. Because world soybean trade is quoted in U.S. dollars, Brazil’s exporters have no reason to lower their asking price just because the equivalent in devalued currency sounds like so much more, he said.

But news of Brazil’s economic problems, and the timing of the USDA crop report, still shook soybean markets. Another factor is the South American soybean crop, which could come in at record or near-record yields later this year.

``A lot of what is going on in soybean prices is an exaggerated pessimism,″ Tierney said. ``Part of the pessimism in the marketplace is the markets’ near certainty of a significant increase in acreage next year, and that has got a lot of people very pessimistic about soybean prices.″

That is in spite of the fact that record amounts of the crop are being consumed. Soybean exports are now down only slightly after a record year earlier.

For the past few years, farmers have been planting more soybeans. The crop has rewarded them so far with better returns than more traditional crops such as wheat, corn and sorghum at a time when all commodity prices are down.

Soybeans require less fertilizer, insecticides and herbicides. Seed costs are lower, and the plant needs much less water to thrive than corn. All that has given farmers the best return among the crops, said Dennis Morrice, spokesman for the Kansas Soybean Association.

Farmers have responded accordingly: Soybean crops have gone from 1.8 million acres in 1994 to 2.5 million acres last year in Kansas. Even more acres are expected to be devoted this year to soybeans when farmers start planting them in late May.

Morrice said problems in the hog industry could spill over to soybean growers because 40 percent of the soybean crop is used as soymeal to feed livestock, with pigs comprising a significant amount of that market. If pig numbers fall sharply in the coming months, so too will the demand for soymeal to feed them, he said.

That does not appear to have happened yet.

``Soymeal prices have been extremely low long before this hog issue hit,″ Tierney said. ``I’m sure that is part of the contributing factor but that has been a phenomena at work for a long time already.″

So far, soymeal production has equaled or neared last year’s record, he said.

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