January 5, 2007

US soybean prices to soar

Soybean prices might be headed for their biggest jump in three decades as farmers plant more fields with corn.

Growers in the US have been sowing the fewest acres of soybeans in 10 years. Incidentally, with rising demand, traders might double this year's average price of US$ 5.98 a bushel and allow soybeans to replace corn as the best-performing farm commodity.

Soybeans are the world's fourth-largest crops by acreage, after wheat, rice and corn.

Since soybeans constitute about 60 percent of processed foods, food makers including Paris-based Groupe Danone and Orrville, Ohio-based J M  Smucker Co would soon charge more to make up for costlier vegetable oil derived from soybeans, said Prudential Equity Group analyst John McMillin.

Higher soybean prices in the US would have an overall effect on the price of other commodities as soybean futures on the CBOT are used as a benchmark to set the commodity's price in other countries.

Canola and palm prices would also rise, increasing expenses for Archer Daniels Midland and Bunge Ltd, the world's largest vegetable-oil producers.

The price of soybeans could reach US$ 13 a bushel by the end of 2007, up from US$ 6.74 now, said Terry Roggensack at Hartfield Trading Partners in Chicago, who accurately forecast a rally in 2003.

A similar surge in the 1970s prompted farmers in Brazil and Argentina to turn barley fields over to soybeans, creating an industry with US$ 21 billion in annual sales.

However, not everyone is convinced of a soybean shortage. Brazil and Argentina, which account for 43 percent of the world's supply, might produce bigger crops, and a price rally before US planting begins in the spring might encourage farmers to cancel plans to switch to corn.