In the spring of 2007 U.S. farmers planted only 64.1 million acres of soybeans, compared to 75.5 million in 2006. As is almost always the case, however, the pendulum swings too far in each direction. Next year the acres will swing back.

The fundamentals driving the shift include high priced soybeans (over $9 as I write this article), high-priced fertilizer for producing corn, and a limited supply of wheat seed.

Even with South American production increasing, soybean supplies are going to be very tight over the next several months. As the accompanying table indicates, USDA is pegging this coming year's carryover at only 215 million bushels versus last year's 555 million. We believe they're a little on the low side, but even at our estimate of 235 million bushels, supplies are going to be tight.

At this stage, we are estimating soybean acres will jump to 69 million acres this coming year. That could be on the low end. But even at 69 million acres and a normal trendline yield, supplies are going to be outstripped by demand. Crush will remain relatively strong with large poultry and pork numbers. Exports should remain relatively stable.

Putting it all together, with 69 million acres we will only be able to produce to match current usage and exports. There will once again be no major surpluses.

What does this mean for prices? What the market is telling us now, is that the world has a shortage of $7.50 soybeans. Time will tell whether or not the world has a shortage of $9 soybeans. They may look the same, but they aren't.

Based upon past historical supply demand relationships, the crop that you just harvested should average in the high $7 to low $8 price range. Even for the 2008-09 crop, it is difficult to justify an average price much above the mid-$7 range.

The bottom line: Both '07 and '08 crop soybeans trading near the $10 mark are prices that will not likely last. While the market may well stay strong into springtime to confirm an increase in planted acreage, once the crop is planted and assuming the acreage at 69 million acres or higher, you could well be looking at a top before the crop is emerged.

Strategies

It certainly is not too early to be looking forward to marketing the '08 crop. No one I know of has ever gone broke selling 10 percent of production at $9 a bushel. This will be a year to make small sales at high price levels to lock in production costs and then only speculate on what is left over. This is going to be a wild ride.