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Friday, December 16, 2011

Soybean Production Dynamics Could Soon Reshape Prices


Minimal US stocks and La Nina threats to Brazilian soybeans may cause the market to wonder if there are enough soybeans to meet global demand.  Prices have not yet responded, and US soybean stocks won’t be reported for another month, but the scene is being set for an interesting bidding war over acres if La Nina makes its curtain call in Brazilian soybean production areas.

Soybean prices on December 14 were $9.72 in Rondonopolis, Mato Grosso and $11.27 in Maringa, Parana in Brazil, with corresponding prices at $10.90 in Decatur, Illinois.  But while beans are being trucked into all three locations, Brazilian farmers are beginning to feel the effects of the dry weather that impacted soybeans across the Cornbelt last summer.

The CropSpotters newsletter reports, “Soybean producers in the western part of top producer Mato Grosso state are starting to get concerned about the lack of rain, according to a report. What rain the region has received has been spotty. An estimated 60 percent of western Mato Grosso’s beans are flowering at this point.”  While flowering is well underway in Mato Grosso, Celeres reports 6% of the expected Brazilian acreage has yet to be planted.  Argentine farmers have yet to plant 31% of their soybean crop, according to the Buenos Aires Grain Exchange.  They have good moisture, for soybean planting, but have reduced their acreage for beans this year due to better prices for corn.  About the time that US December 1 stocks are report January 10th, the market will increase its focus on the La Nina impact on South America.

Soybean prices in the US are well below the $14.50 at the first of September and even the $13.00 at the first of the year.  University of Illinois Marketing Specialist Darrel Good says that reflects higher South American acreage, large production by other foreign competitors, diminished domestic crush due to less demand from livestock producers, and reduced export demand.

Regarding export demand, Cornbelt Update subscribers learned last week that, “Marketing year sales are 810 mil. bu., down 34% from last year, and slightly behind the pace needed to reach the USDA’s export target.  China has purchased 582 mil. of those bushels, but that is down from the 781 mil. China had purchased at this time in 2010.  China has slowed its purchases of US beans in favor of South American soybeans.”

Because of the Chinese demand, Kansas State University Marketing Specialist Dan O’Brien says soybeans will not be a commodity in surplus, “Given the ongoing growth in U.S. soybean export demand – primarily from China – and the competing demands for U.S. cropland to produce feed grains, wheat and other crops, it seems likely that U.S. soybean supply-demand balances will remain historically tight for at least the next 1-2 years.  Either a) a return to yearly trend line increases in U.S. soybean yields, b) a large increase in U.S. soybean acreage in 2012, or c) a sizable reduction in U.S. soybean usage will be needed to appreciably rebuild U.S. soybean stocks in MY 2012/13 and later years.”

Those are US stocks, but what about global stocks?  They are tight, but not as tight, says O’Brien.  He says global stocks to use are under 25%, but three month supply has declined over the years, “Due to growth in World soybean usage, World % ending stocks-to-use have declined from 24.9% in MY 2009/10 and 27.2% in MY 2010/11 down to a projected level of 24.8% S/U in MY 2011/12.  This trend toward tighter World soybean supply-demand balances continues to provide support for soybean markets for the remainder of 2011 and on into 2012.”

O’Brien says the current rate of soybean use in the US and La Nina’s presence in South America point to tight supplies of soybeans, “It is likely that concerns about the adequacy of U.S. and World soybean supplies and supply-demand balances are likely to persist through the summer of 2012, and possibly into the early part of MY 2012/13 which begins September 1, 2012.”  O’Brien interprets that as continued volatility in the soybean market through the 2012 growing season.

Soybean stocks are tight, particularly in the US, but prices have softened because of reduced demand and the potential for more foreign competition.  However, La Nina weather threats in Brazil, have cast a doubt on 2012 production capability.  Global demand continues, and global supplies are slowly eroding.  US stocks and future market prospects for soybeans will next be reported January 10.

Posted by Stu Ellis on 12/16 at 06:36 AM | Permalink

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