January 2, 2010

 

Uncertain outlook for US 2010 soy price trend

 

 

The soy market faces a deeply uncertain outlook as there could either be continue demand-side strain or an overwhelming supply response in the year ahead.

 

A record-large 2009 US soy crop and prospects for bumper harvests in South America should replenish tight global soy stocks and pressure CBOT soy futures, said Jerry Gidel, analyst with North America Risk Management Services.

 

If South America collects bumper harvests, the world will have ample supplies with a year-end price of US$8-US$8.50 per bushel, said Gidel, adding that prices for both old crop July soy and new crop November soy will probably drop by US$1.50-US$2 per bushel.

 

Tim Hannagan, senior grains analyst with brokerage PFGBest, gave a different outlook, saying that soy prices will finish 2009 at US$10.50 per bushel.

 

China will continue importing large amounts of soy and it will be years before the Chinese can produce enough corn and soy to meet their own needs, according to Hannagan.

 

He sees soy prices rising to US$11.75-US$12.25 by next summer, buoyed by continued strong demand from China, the world's top soy buyer. US soy exports are on a record-setting pace for the current marketing year begun September 1, driven by relentless demand from China.

 

The spot CBOT soy contract settled Wednesday (Dec 30) at US$10.36-1/4 after a year in which spot prices ranged from a low of US$8.43 in March to a top of US$12.91-1/4 in June.

 

Gidel supported his projection by pointing to this autumn's biggest-ever soy crop, at 3.3 billion bushels, and the US Department of Agriculture's forecast for record crops for Brazil, where the growing season is off to a strong start due to favourable weather.

 

However, he cautioned that soy prices could easily spike to US$12 in the next six to eight weeks if South American crop weather deteriorates which will prompt concerns of yield.

 

Hannagan pointed to likely continued investment from commodity index funds, underscoring Wall Street's view of agricultural commodities as an undervalued asset class. The index funds buy the strong demand scenario every year and it will come back, he said.

 

Soy futures would find support next spring during the annual battle for US acres. Soy competes with corn for acreage, with farmers seeking the highest returns as they plan for spring seedings. If prices for soy fall too low relative to corn, the threat of a drop in soy acreage and production should lift prices back up, and vice-versa.

 

Corn and soy will battle each other again to ensure they do not lose acres to the other, Hannagan said.