July 17, 2009

US spot soy prices at the Chicago Board of Trade (CBOT) face wild price swings, caught between old-crop supplies that may hit a 32-year low and an upcoming bumper harvest that will have grain bins overflowing.

 

In a little more than two weeks, the spot contract has lost more than 20 percent of its value, but instead of a steady march lower, trading has been punctuated by wild swings in values.

 

US is the world's largest producer and exporter of soy and has seen strong demand this season after a drought reduced the South American soy crop.

 

The main catalyst for the expected fireworks in the August CBOT soy contract are dwindling old-crop supplies due to robust demand from processors in China, the world's largest soy buyer.

 

US soy export sales already set a new record, three months before the marketing year will end on August 31, and Chinese soy imports have also set new highs.

 

But the Chinese said Thursday (July 16) they plan to sell 500,000 tonnes of soy from state reserves next week, although dealers in Asia and Europe wonder if it is an attempt to nudge prices lower so they can buy more soy later.

 

Supplies will remain scarce until American farmers harvest a new crop this fall. US soy supplies for 2008-09 are forecast to fall to 110 million bushels, the lowest in more than three decades.

 

US farmers planted 77.5 million acres to soy this spring, the largest on record.

 

China is the world's biggest consumer of soy for its pig and livestock industry. It has turned to the US and Brazil, the world's No. 2 soy producer, after the bean crop in Argentina, the No. 3 producer, suffered from drought.

 

Jerry Gidel, analyst for North America Risk Management Inc, said harvest of the US Pacific Northwest crop will help ease the supply shortage being felt in the market, but the problem is that such a solution remains a few months away.

 

One indication that August retains importance is that the spread between August and November moved to US$1.10 from US$1.60 a few sessions ago.

 

Gidel said old-crop soy could trade in a significant range between US$8.70 and US$11.40 a bushel this summer while the new crop could trade in a narrower gap between US$8 and US$10.

 

He said the spread could re-tighten to July's US$2.00 levels over new-crop supplies if old-crop demand remains brisk ahead of harvest.