April 10, 2007

 

ASA weekly: USDA prospective plantings analysis; Nebraska strikes soy deal with Cuba; Research on extracting ethanol from soymeal; Barge freight rates slump

 

 

USDA prospective plantings analysis
 

USDA issued its 2007 Prospective Plantings report on Mar 30 showing a total crop planted area of 127 million hectares, 1.86 million hectares above last year and, if realised, would be the largest planted area since 2004.

 

Soybean area is expected to total 27.2 million hectares, which would be 1.29 million hectares below last year and about 809,000 hectares below what the market expected USDA to report. This will be the lowest soybean planted area since 26 million hectares was planted in 1996. In percentage terms, the largest cuts were in North Dakota, Kansas, Louisiana and Texas. USDA reported increased plantings in New York, the Carolinas, Georgia, Florida, and Alabama.

 

USDA shocked the market with a corn plantings intention figure of 36.6 million hectares, up 4.9 million hectares from last year. This was a bigger shift in planting area than the market was anticipating.

 

Despite many analysts' view that the Prospective Plantings report showed farmers' incentive to shift to corn from soybeans (as well as cotton, spring wheat and rice), there is evidence that corn increases do not have to come completely at the expense of soybeans. In fact, this idea may have contributed to the sharp drop in soybean futures following USDA's report.

 

Market reaction may also reflect the response that might occur elsewhere in the world. Critical for the soybean market will be how aggressively Brazil expands its soybean production, which may be moderated by its strengthening currency. The response in Argentina probably will not be more soybean hectares, but instead, that country is likely to react more like the US since it is well positioned to increase corn production and exports.

 

Nebraska strikes soybean deal with Cuba
 

Nebraskan farmers appear to be on the verge of a deal that would annually send US$55 million in soybeans directly to Cuba, according to a report in the Omaha World Herald. The arrangement, if finalised in the coming months, would bypass normal channels for grain shipments as a way of providing better-quality soybeans to Cuba.

 

A sale of this size would bolster soybean prices in the state and would also consume about 3 percent of Nebraska's soybean crop at a time when there is about a year's supply in storage.

 

The Nebraska Agriculture Department and the Nebraska Soybean Board are negotiating with the Cuban import authority. The soybean contract, if finalised, would be the largest Nebraska-Cuba trade agreement yet.

 

Wisconsin company working on extracting ethanol from soymeal

 

The soymeal market may soon exhibit the same reaction to ethanol demand if a company's research proves commercially viable. According to a report from The Public Ledger, C5-6 Technologies, which is based in Wisconsin, is researching enzymes that will extract ethanol from soymeal. Up to this point, only biodiesel has been made from soybeans via its oil.

 

"We could have a process that is by far the most profitable ethanol process out there," claimed John Biondi, president of C5-6 Technologies. He noted that the process also creates a soy protein concentrate that can be used as a petroleum substitute in products such as adhesives and plastics.

 

"This could dramatically increase ethanol production without requiring new acres of corn to be planted," said Brett Hulsey, president of Better Environmental Solutions, who has been hired as a consultant. "It's good to have crop diversity."

 

Expanding beyond corn for ethanol production in the United States is a strategy that Biondi said is necessary for the industry to be sustainable. "We have to have multiple feedstocks in order to get to the level of bio-fuels production that we're going to need in order to make a significant difference in oil consumption," he said. "We can't do it on corn alone."

 

Barge freight rates slump
 

The cost to move grain by barge off the Illinois River ended March down 22 percent from one year ago to 274 percent of tariff, a monthly average last seen in July 2005. March is a precarious month for barge freight as navigation conditions can vary from one week to another let alone one month to the next.

 

During March, the Upper Mississippi River reopens to navigation after being closed for the winter. And in some years, the spring thaw leads to spring flooding that impacts navigation. Given such an environment, barge volumes can and do vary considerably as well.

 

Barge freight rates are on the backside of a strong freight period that started in July 2004 and punctuated with impacts from hurricanes Katrina and Rita. This market is poised for considerable upside potential. Scrap steel prices have reportedly jumped in recent weeks and could signal an opportunity for a step up in barge scrapping, especially in light of the soft freight rates.

 

Freight rates have been under pressure for slower movements of commodities including steel, cement and grain to a certain degree. Steel imports for February were reported down 27 percent from last year to 2.4 million tonnes. More than one-third of all imported steel enters the US through the Gulf, with a considerable volume moved by barge upriver. This is well reflected in movement weakness through the key locks on the upper river segments.

 

Oilseed and grain barge volumes turned higher soon after the ice started melting, but have since fallen to near 15 year lows on a weekly basis. While the barge market is going through a bit of a slump, it still has momentum with decent commodity movements still built into the fundamentals.

 

US & South America Soybean/Products Balance

	United States			Argentina			Brazil
	Actual	Estimate	Proj.	Actual	Estimate	Proj.	Actual	Estimate	Proj.
	2004/05	2005/06	2006/07	2004/05	2005/06	2006/07	2004/05	2005/06	2006/07
Soybeans	thousand tonnes
Carryin	3,059	6,960	12,229	2,434	514	579	3,400	1,440	514
Production	85,013	83,368	86,770	39,000	40,500	44,000	53,000	55,000	56,000
Imports	152	92	109	708	900	950	353	60	100
Crush	46,160	47,320	48,444	29,560	32,600	36,000	29,730	28,200	27,300
Exports	30,011	25,778	29,937	10,548	7,200	7,350	22,798	25,450	26,700
Other	5,093	5,093	4,521	1,520	1,535	1,566	2,785	2,336	2,024
Usage	81,264	78,191	82,902	41,628	41,335	44,916	55,313	55,986	56,024
Carryout	6,960	12,229	16,206	514	579	613	1,440	514	590
Soymeal	thousand tonnes
Carryin	191	156	285	1,350	1,187	1,549	870	640	490
Production	36,936	37,414	38,484	23,347	25,487	28,400	22,928	21,850	21,435
Domestic use	30,446	30,097	30,754	537	575	650	9,162	9,950	10,200
Net Exports	6,525	7,188	7,743	22,973	24,550	27,600	13,996	12,050	11,400
Usage	36,971	37,285	38,497	23,510	25,125	28,250	23,158	22,000	21,600
Carryout	156	285	272	1,187	1,549	1,699	640	490	325
Soybean oil	thousand tonnes
Carryin	488	771	1,370	660	542	659	293	248	450
Production	8,781	9,250	9,147	5,404	6,200	6,800	5,708	5,403	5,233
Domestic use	7,910	8,144	8,641	408	458	709	3,059	3,319	3,385
Net exports	588	507	656	5,114	5,625	6,100	2,694	1,882	2,000
Usage	8,498	8,651	9,297	5,522	6,083	6,809	5,753	5,201	5,385
Carryout	771	1,370	1,220	542	659	650	248	450	298

 

USDA Export Sales (tmt) - Week of 29 March 2007

		New	Accum.				New	Accum.
Country	Commodity	Sales	Exports		Country	Commodity	Sales	Exports
China	Soybeans	20.7	9882.2		Honduras	Soymeal	1.7	64.9
Colombia	Soybeans	5.7	183.5		Indonesia	Soymeal	1.5	28.4
Indonesia	Soybeans	43.9	824.9		Jamaica	Soymeal	2.2	54.2
Japan	Soybeans	190.3	1901.8		Japan	Soymeal	1.3	180.3
Korea, Rep.	Soybeans	1.6	496.6		Mexico	Soymeal	22.2	692
Malaysia	Soybeans	24.3	186.4		New Zealand	Soymeal	12	18
Mexico	Soybeans	43.2	2208.2		Nicaragua	Soymeal	5.1	34.3
Netherlands	Soybeans	135.1	1390.5		Philippines	Soymeal	31.9	218.8
Philippines	Soybeans	0.7	51		Salvador	Soymeal	3.6	66
Syria	Soybeans	39.5	222.4		Canada	Soyoil	3.7	18.3
Taiwan	Soybeans	13.1	1244.2		Lebanon	Soyoil	0.2	0.4
Australia	Soymeal	43	43		Mexico	Soyoil	1.7	43.6
Canada	Soymeal	11.5	641.8
Colombia	Soymeal	7.2	163.1		Export Sales Totals (tmt)
Cuba	Soymeal	40.1	46.4		Commodity	Outstanding	Accum.	New
Dom. Rep.	Soymeal	3.9	211.4			Sales	Exports	Sales
Ecuador	Soymeal	22	28.9		Soybeans	3,789.40	23,375.50	259.3
FWW IND	Soymeal	2.9	8.6		Soymeal	1,630.60	3,497.80	121.6
Guatemala	Soymeal	10.8	173.5		Soyoil	45.3	331.3	13.8