January 31, 2012

 

US soy price to drop 4% by end 2012

 

 

If crop weather in the US improves after a difficult season in 2011, soy prices are likely to fall for a second straight year by the end of 2012, a newspaper poll showed.

 

Front-month soy futures at the Chicago Board of Trade (CBOT) should finish 2012 at US$11.47 a bushel, down about 4% from the end of 2011, a poll of 12 analysts showed.

 

"I think we'll have periods where (prices) will go up from where we are, but overall if we have normal weather we'll see an easing of the tight supply for everything," said Terry Roggensack, analyst for The Hightower Report.

 

Conversely, poor crop weather in 2012 would likely drive prices higher, several analysts said. US farmers harvested 3.056 billion bushels of soy in 2011, the smallest crop in three years, due to poor planting weather and a hotter-than-normal summer that cut yields. Iowa, the nation's top soy producer, recorded its hottest July since 1955.

 

CBOT soy futures hit a near three-year high of US$14.56 per bushel last August as traders fretted about the US crop and built up a weather premium.

 

But prices faltered by year's end, pressured by export competition from Brazil, which is projected to surpass the US as the world's top soy exporter for the 2011/12 marketing year following a record-large 2011 harvest.

 

USDA in mid-January raised its forecast of US soy ending stocks for 2011/12 to 275 million bushels, the most in five years, as US soy exports slowed amid competition from Brazil.

 

Fears of a global recession also weighed on the market in late 2011, steering investors out of commodities. CBOT soy fell to their 2011 low in mid-December, dipping below US$11 a bushel, but closed the year at US$11.98-1/2. Prices rallied as drought in Argentina and southern Brazil has threatened the developing Southern Hemisphere soy crop, but critical rains in the past two weeks may have bolstered prospects.

 

The health of the world economy remains a wild card for the soy market in 2012. Questions surround the euro zone debt crisis, possible signs of US economic recovery and the pace of growth in China, the world's largest soy buyer.

 

"I think this year is as hard a year to forecast as any that I've been around," said Jack Scoville, analyst with the Price Futures Group.

 

"We will see what the Chinese do, if they are going to be able to keep their economy going as strong. If they have to back off of anything, then we've all got a problem, export-wise," Scoville said.

 

End-year soy prices on the poll ranged from a low of US$8.50 a bushel to a high of US$16.33, but most forecasts ranged from US$10 to US$12. All but two fell below the 2011 closing soy price of US$11.98-1/2.

 

One exception was Goldman Sachs, which projected a 12-month soy price of US$12.15 a bushel. The bank cited the risk of a persistent La Nina weather pattern, which has already caused dryness in Argentina, and a possible shift of US soy acres to corn in 2012.

 

"We continue to expect that soy prices will outperform corn prices over the medium term," the bank said in a research note this month. "Even if weather conditions improve markedly in South America," it said, "we expect soy to outperform in 2012/13 on relative acreage loss to corn in the US next spring."

 

As with soy, analysts expect CBOT soyoil prices to drop for a second year, extending a nearly 1% drop in 2011. The average end-year soyoil price among nine analysts was US$47.62 per pound, down nearly 9% from US$52.09 at the end of 2011. Soyoil prices should face pressure from a larger 2012 US soy crop as well as expanding global production of competing vegetable oils including palm and sunflower.

 

"I (see) a strong rebound in Malaysian and Indonesian palm production. They are continuing to expand," Roggensack said.

 

"The high prices we saw for canola and soy (in 2011) are going to encourage more acres. Ukraine is coming on as a big sunseed exporter," he added.