KANSAS CITY — Old crop soybean prices were at seven-month highs, approaching $12 a bu, at the Chicago Board of Trade last week on shrinking supplies and strong demand, with added support from renewed buying by commodity funds.
The bullish scenario for old crop soybeans was confirmed in the May 12 World Agricultural Supply and Demand Estimates in which the U.S. Department of Agriculture forecast U.S. soybean supply on Sept. 1, 2009, the end of the 2008-09 marketing year, at 130 million bus, the smallest carryover in five years.
A private consulting service last week forecast the carryover even tighter, at only 77 million bus, the lowest in more than 30 years.
Fundamentals were in line for a run in soybean prices. Production in key South American countries has continued to slide. The U.S.D.A. estimated 2008-09 production in Argentina, the world’s third-largest producer behind the United States and Brazil, at 34 million tonnes, down 5 million tonnes from its April estimate and 26% below a year ago. Still, the number was above the latest estimate from Argentina’s Buenos Aires Grains Exchange, which put this year’s crop at 32.2 million tonnes, down 600,000 tonnes from just a week earlier with hints of additional reductions even though the harvest was 94% completed last week. The crop was ravaged by drought during the growing season.
Production in Brazil also was lower, estimated by the U.S.D.A. at 57 million tonnes this year, down 7% from last year with most of the decline in the south.
Adding to South America’s woes has been an ongoing dispute between farmers and the government of Argentina over taxes on grain exports, which has resulted in inconsistent shipments from the world’s No. 1 exporter of soybean meal and soybean oil.
As a result China, the world’s largest soybean importer, has continued to buy from the United States at a time of year when the Asian giant usually is securing more supply from South America. In addition, China was forecast by the U.S.D.A. to import 16 million bus of soybeans this year, 2 million bus more than last year.
"A seasonal slowdown is under way for U.S. soybean exports, yet the decline has been quite gradual, largely due to continued trade with China," the U.S.D.A. said in its most recent Oil Crops Outlook. Rising ocean freight rates, although still well below year-ago levels, also have encouraged Asian buyers to favor the United States over South America.
The C.B.O.T. July (old crop) soybean futures contract price was near $11.70 a bu last week, up about 20% from late April and up 45% from the Dec. 5, 2008, low but still about 30% under the July 3, 2008, high of $16.47½. Interestingly, 2008-09 ending stocks were projected at 140 million bus last July when soybean prices peaked, which was 10 million bus more than the current estimate.
Soybean, soybean meal and soybean oil futures prices have been at an inverse, meaning nearby months were higher than deferred delivery periods. Old crop soybean futures prices were about $1.50 a bu above new crop values last week. Corn, wheat and most other grains were at a more typical carry in which later months are priced higher than nearby. But for the other crops, smaller crops were forecast for 2009 (2009-10 supply) than were produced in 2008, and 2008-09 ending stocks were forecast at more comfortable levels compared with soybeans.
Adding to the increase in soybean prices has been investment funds’ renewed interest in holding soybean futures and commodities in general, trade sources have said. News service headlines stating "up on fund buying" were common on soybean and other market commentaries last week. Commodity funds were arguably a major player in the run-up of commodity futures prices to record levels last year but have played a significantly smaller role for several months due at least in part to poor economic conditions.
While much of the 2009 soybean crop remains to be planted, drier weather across the prime Corn Belt producing states last week should greatly aide farming operations, especially east of the Mississippi river where planting of corn and soybeans had been well behind normal. But that will be of little import to shrinking old crop soybean supplies.
Traders had anticipated soybean and product prices would rise as the market seeks to "ration" supply between now and when new crop becomes available in late September and October. How much more prices will rise, or if recent gains will be sustained, remains an open question.
This article can also be found in the digital edition of Food Business News, May 26, 2009, starting on Page 35. Click