Demand devouring record soybean supply

by Ron Sterk
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KANSAS CITY — In spite of a record large U.S. 2010 soybean crop, voracious demand, especially from China, is quickly eating away at supplies and boosting prices while raising concerns about 2011 carryover and prices of soybeans and soybean products. More than ever, the world needs bumper production from South America where the planting of the crop is nearing completion.

The U.S. Department of Agriculture has estimated U.S. 2010 soybean production at a record 3,375 million bus (91.85 million tonnes), up slightly from the previous record of 3,359 million bus set last year. But at the same time, the department projected 2010-11 soybean exports at a record 1,570 million bus (42.73 million tonnes), up 5% from 2009-10 and equal to 47% of U.S. 2010 soybean production. Average prices received by farmers were forecast to range from $10.70@12.20 a bu, well above the $10.10 average of 2007-08 when soybean prices topped $16 a bu in early July 2008.

“Despite this year’s record crop, soybean prices may be approaching an all-time high due to strong foreign demand,” the U.S.D.A. said in its November Oil Crops Outlook. “Cash soybean prices for central Illinois averaged $11.30 per bu in October, the highest ever recorded for the month.”

The U.S.D.A. noted the U.S. average farm price for soybeans in October was $10.20 a bu, beneath the low end of the forecast 2010-11 range, because of earlier forward sales at lower prices, but in its Nov. 30

Agricultural Prices report, the preliminary price jumped by $1 to $11.20 a bu.

“Only a modest percentage of the crop has been priced so far,” the U.S.D.A. said. “The cash basis on new sales should strengthen quickly and buoy the season-average farm price. By next spring, even higher prices may be necessary to ration the extraordinary demand for exports.”

The U.S.D.A. also noted U.S. soybean export bids, f.o.b. Gulf, averaged $463 a ton in October, the highest since June 2009. The department said, “Strong demand for exports, primarily from China, continues to support prices higher.”

Chinese soybean demand has been evident in U.S.D.A. export data. Last week the department reported sales to China during the week ended Nov. 25 of 1,483,800 tonnes, above the actual weekly sales total of 1,341,600 tonnes because of switches and decreases from “unknown destinations” and other countries. For the marketing year to date (Sept. 1, 2010 to Nov. 25), accumulated exports of U.S. soybeans to China totaled 10,736,500 tonnes, up 32% from the same period last year and equal to 71% of total U.S. accumulated exports of 15,164,600 tonnes, according to U.S.D.A. weekly export data.

A top Chinese grain trader recently said the country’s soybean imports would continue to grow at 5% to 7% per year. Total Chinese soybean imports from all sources were forecast by the U.S.D.A. at 57 million tonnes in 2010-11, up 13% from 2009-10.

U.S. soybean export sales commitments to all countries in the first 13 weeks of the 2010-11 marketing year were 19% ahead of the same period a year-ago, the U.S.D.A. said.

Although domestic soybean use, projected at 48.5 million tonnes, is expected to fall 4% from 2009-10, the strong pull of foreign demand has been evident. Merchandisers of soy flour and other soybean products in some cases have recommended buyers book supply for the entire 2010-11 marketing year because of the potential for still higher prices, especially when the soy product is not a major part of total ingredients, as is often the case with soy flour.

Higher prices for soybean oil, for example, a major ingredient in mayonnaise, have contributed to a 43% increase in the Food Business News proprietary “mayonnaise index” since early July. Trade sources suggested buyers should have heavy soybean oil coverage through March 2011, after which ideas will emerge of South American soybean production and of U.S. 2011 planting intentions.

Currently, planting in Brazil, the world’s second largest soybean grower after the United States, is nearly completed and in Argentina, the third largest producer, the crop is more than 50% planted. The U.S.D.A. in November forecast record large planted soybean area in Brazil and area equal to last year in Argentina, although Argentina’s Agriculture Ministry recently said it also expected record large plantings there, although dryness in Argentina remains a concern.

Revised forecasts in the U.S.D.A.’s Dec. 10 WASDE, as well as revisions through the first quarter of 2011 before the March 31 U.S. Prospective Plantings report and until South American soybean crop prospects are better known, will be closely monitored by the trade.

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