July 13, 2009

 

A downward shift in Chicago Board of Trade soy prices during the last month is sparking ideas that the old crop carryout may not be as razor tight as previously thought.

 

Tight supplies have lead to strong soy prices, but old crop contracts may have seen their highs for the summer, as growing speculation of more available soy inventories to carry into the new marketing year take some wind out of bullish sails.

 

Since June 11, old and new crop soy futures have trended lower. The August futures contract is down 13.2 percent and November soy have shown a 19 percent decline in price.

 

"Prices are saying the situation is not as tight as US Department of Agriculture end stocks are indicating in respect to prices," said Anne Frick, senior oilseed analyst with Prudential Bache in New York.

 

"The market is telling us it hasn't eliminated its concerns about tight old crop stocks, but it's starting to think we have enough supplies to hobble into the 2009-10 marketing year."

 

The market needs enough 2008-09 soy carryover inventories to last through the month of September. USDA estimates 2008-09 carryout at 110 million bushels.

 

"My feeling is you need 160 million bushels, so you need to have some new crop supplies move to the market before the end of September," Frick said. She estimates the carryover in the area of 120 million bushels.

 

Mario Balletto, an analyst with Citigroup in Chicago, said price action seems to indicate maybe there is more supply available to bridge the gap between old and new crop, "but we won't know for sure until USDA releases its quarterly stocks report September 30."

 

The market is beginning to think that the USDA's residual figure opens the door for more available supply, particularly with export demand from China remaining firm and domestic crush prospering from soymeal exports, Balletto said.

 

USDA in its July supply and demand report pegged 2008-09 residual usage at 59 million bushels, down from 73 million estimated in June. Exports are pegged at 1.26 billion bushels, up 10 million from June and up from 1.1 billion reported in January.

 

The Census Bureau's cumulative export figure is running above USDA weekly shipments and inspections, but despite the strong export demand, price action is down. In comparison, soy prices spiked to a record US$16.00 a bushel on tight end stocks that wound up 95 million above current USDA 2009 forecasts.

 

"The market is maybe looking back to 2008 when USDA took residual use down to virtually nil and the historical tendency for the market sale more than its ships in the marketing year," Frick said.

 

The USDA's 59 million bushel residual use estimate could free up 50 million more bushels of supply, providing more breathing room for the market heading into September.

 

Traders are concerned about this feature amid fears a very wet spring in southern US soy growing areas may provide a possible lag time for the first new crop soy to enter the cash market pipeline.

 

China, the world leader in soy imports, remains the key buyer of US beans, but instead of prices rallying to slow demand, prices are retreating.

 

"The situation almost implies end users are pretty close to being covered through August," said Balletto, but he said that nevertheless "you can't say the bull market or supply worries are over, as any problem with early harvests or demand surprises could quickly alter market perceptions."