June 11, 2009

US soy reserves before this year's harvest will be the smallest since 1977 as reduced production in South America boosts global demand for supplies from the US, the world's the biggest producer, the government said.

 

Inventories on August 31, 2009, will total 110 million bushels, down from 130 million forecast last month and from 205 million bushels on hand a year earlier, the US Department of Agriculture (USDA) said.

 

A commodity procurement specialist at International Food Products Corp., Steve Nicholson said US soy supplies are going to be acutely tight, leaving little excess supply to protect against possible crop losses, adding that any hiccup in production in the Northern Hemisphere this year will be a major problem.

 

On Tuesday (June 9), soy futures for July delivery rose 11 cents to US$12.435 a bushel, after reaching a nine-month high of US$12.49. The price has climbed 11 percent since the USDA's last supply and demand report, on May 12, and is up 27 percent this year.

 

Tighter supplies may increase livestock-feed expenses for Tyson Foods Inc. and Smithfield Foods Inc.

 

In a March survey, US farmers indicated they intended to plant 76.024 million acres of soy this year, up 0.4 percent from last year.

 

Higher fertiliser costs and crop-rotation practices make oilseeds more appealing this year than corn in the Midwest and cotton in the South.

 

Nicholson said rain delayed corn planting and may prompt some farmers to switch crops and USDA may increase its estimate of the area planted with soy by more than 2 million acres when it updates the figure on June 30.

 

Overseas demand in the current marketing year will rise to 1.25 billion bushels from 1.24 billion estimated last month and up from 1.161 billion last year as buyers, including China, have increased purchases after drought reduced crops in Brazil and Argentina, the two biggest exporters after the US.

 

According to USDA, exports for delivery in the marketing year that ends August 31, 2010, will be 1.26 billion bushels, unchanged from last month.

 

USDA said US farmers will harvest 3.195 billion bushels in the marketing year that begins September 1, unchanged from the May forecast and up from 2.959 billion harvested in 2008.

 

Also, US processors will convert 1.675 billion bushels of soy into animal feed and vegetable oil in the year that begins September 1, unchanged from last month and above the 1.65 billion expected this year.

 

Prices will average US$10.00 a bushel at the farm gate in the year that begins September 1, up from an estimated US$9.45 this year.

 

USDA said estimated global production in the marketing year that ends September 30 will total 210.9 million metric tonnes, compared with 212.8 million tonnes forecast a month ago and down from a record 221.2 million tonnes last year due to smaller crops in South America. Output in the year that begins October 1 will reach 241.67 million tonnes, compared with 241.72 million forecast in May.

 

USDA also said inventories on October 1, before the Northern Hemisphere harvest, will total 41.9 million tonnes, down from 42.6 million estimated in May and from 52.9 million tonnes a year earlier. Reserves before the 2010 harvest were forecast at 51 million tonnes, down from 51.9 million tonnes estimated last month.

 

Nicholson said the trend in the last several years has been for demand to outstrip global production capacity, adding that prices will have to stay high to keep farmers planting more to prevent shortages from developing.