May 31, 2012

 

World soy prices likely to test US$14/bushel

 

 

In the next few weeks due to strong fundamentals, global soy prices are likely to rebound and test US$14 a bushel, analysts and industry participants said Wednesday (May 30).

 

Tight inventories and strong demand, combined with dry weather in South America and uncertainty about size of the next US crop, will push prices higher in the coming weeks, they said.

 

The near-month July soy futures contract on the Chicago Board of Trade is trading around US$13.78/bushel.

 

"Fundamentals are strong and the market is bullish for the near term while there is uncertainty for the medium term," said Kaname Gokon, Tokyo-based deputy general manager at Okato Shoji Co.

 

Global soy fundamentals will remain bullish through the rest of this year and early 2013, said Victor Thianpiriya, a Melbourne-based agricultural analyst with ANZ Banking Group. The latest data indicate that end-quarter stocks of the world's top three producers--the US, Brazil and Argentina--will fall on a yearly basis until the first quarter of 2013, he said.

 

Supply will be tight until the next US harvest in September, but even after that demand pressures will be stronger than usual because of an expected decline in South American output, a Singapore-based regional head of a global commodities trading company said.

 

The International Grains Council recently cut its estimate of South American soy production this marketing year for the seventh time since September, bringing the projected on-year drop to 16%.

 

South America's 2011-12 soy output is now estimated at 114.4 million tonnes, based on aggregate crop and marketing years in producing countries. The size of the next US harvest is unclear due to an uncertain weather outlook, Gokon said. Due to the uncertainty, investors may not be aggressive in setting up long positions but premiums in the cash market are likely to be steady or firmer after the recent decline, he said.

 

The IGC now projects that global soy output will fall by 30 million tonnes in 2011-12, while global trade will fall by only 2.3 million tonnes, indicating a massive depletion of inventories. Importers are making purchases benchmarked to the CBOT November contract, even though the shipment will be in the July-August period, because it is trading at a discount of US$0.88/bushel to the July contract.

 

The contract represents US soys that are now being planted and will be available for export in November. The Taichung branch of Taiwan's Breakfast Soy Procurement Association Friday (May 25) purchased two cargoes of Brazilian soy. The August 1-15 shipment was at premium of US$3.05 a bushel to the CBOT November contract, C&F, traders said.

 

The other cargo was for September 6-20 shipment at a US$2.92 premium, C&F. At the latest CBOT levels, flat prices work out to US$586/tonne and US$581/tonne.