July 3, 2007

 

Summer US soybean production to fall on acreage drop

 

 

The drop in US soybean acreage, as reported by the US Department of Agriculture last week, will lead to a fall in production this summer, said Darrel Good, extension economist at the University of Illinois at Urbana, in a weekly market report.

 

Planted acreage of soybeans was estimated at 64.081 million, 3.059 million less than indicated in March, 11.441 million less than the record acreage of 2006, and the fewest since 1995.

 

"Compared to March intentions, acreage declines were widespread, led by declines of 400,000 acres in Indiana, Iowa, and Minnesota," Good said in the report. The USDA projected harvested acreage at 63.285 million.

 

"If the 2007 average yield is near the USDA's calculated trend value of 41.5 bushels, the 2007 crop could total 2.626 billion bushels, 562 million less than the record crop of 2006," Good said.

 

Soybean inventories as of June 1, 2007 were estimated at 1.091 billion bushels suggesting that use during the current year is proceeding near the rate projected by the USDA. In the USDA's June 11 supply and demand report 2007-08 projected soybean use was estimated at 3.039 billion bushels.

 

"With a crop of 2.626 billion bushels, use at that level would result in the level of stocks declining from a projected 610 million bushels on September 1, to 200 million bushels on September 1, 2008," Good wrote in the report.

 

While US soybean inventories will be reduced dramatically during the year ahead, rationing of use won't be required if the average yield is near trend value or higher, Good said.

 

The market will likely continue to offer producers very favourable pricing opportunities for old and new crop soybeans during the next several weeks, Good said. However, "a continuation of futures prices above US$9.00 will motivate a large increase in soybean acreage in South America, opening the door for a very large crop in 2008," Good added.

 

"When you have May 2008 soy prices at US$9.18 a bushel, that's a hell of a price for farmers," Brew said about soybean futures on the Chicago Board of Trade (CBOT).

 

Brokers from Alianca and traders from Archer Daniels Midland said farmers were "price curious" and consulting them on where the market was likely going.

 

"Independent of the USDA report that has everyone bullish on soy futures, you have the weather market in the US and farmers here are watching that because the dollar and discounts are taking some gains away from Chicago prices," said Helio Sirimarco, a broker at Fator in Rio de Janeiro.

 

July soybean premiums declined 17 points on Friday to 42 cents below the July soybean contract on the CBOT.

 

The dollar is trading at BRL1.915, while Goldman Sachs chief economist for Latin America, Paulo Leme, said Monday (July 2) that he expects the Brazilian real to strengthen to BRL1.85 in the weeks ahead, according to his comments to a local Estado de Sao Paulo newspaper reporter in London this week.

 

International soy buyers from Europe to Asia determine the discount prices on Brazilian soybeans and they tend to increase discounts whenever Chicago soy prices go up.

 

"Business wise we are not busy, but consulting and queries from farmers have the phone ringing off the hook," said Steve Cachia, commodities analyst for grain brokerage Cerealpar.

 

"Last week their (farmers) target was US$9 per bushel. Now their question is if it can go to US$9.50," Cachia said about near-term CBOT soy prices.

 

Farmers are trying to speculate on higher prices to help recover from two straight years of lost profits due to a combination of low commodity prices and a weak US dollar.

 

Early market guesses are that Brazil will increase soy planted area by as much as 5 percent from the 20 million hectares planted in 2006-07. Brazil starts planting soy in October.

 

Brazil is the world's second largest soy producer.