July 25, 2012

Soy, corn demand reduced as prices spike

World demand for corn and soy will be reduced in coming months as farmers look for cheaper options and scale down livestock herds in light of a sharp spike in soy and corn prices in the past four weeks, Hamburg-based oilseeds analysts Oil World said on Tuesday (July 24).

"The recent explosion of feed costs will inevitably lead to demand destruction in the feed use of corn and soymeal in the coming six months," Oil World said. "Once livestock herds, in particular pigs, are reduced, there will be a significantly smaller demand base for some time and a shift to wheat will erode corn and soymeal usage."

Chicago soy futures have risen by as much as 28% in the last month and corn has soared as much as 50% as the worst drought in 56 years in the US Midwest threatens harvests, following drought in Brazil and Argentina which damaged soy crops.

"Demand rationing (of soybeans) will be inevitable in coming months, given the sharply reduced South American soybean stocks and deteriorating US crop prospects," Oil World said.

But US, Argentine and Brazilian soy exports were still strong up to the end of June, it said.

"For some importers the recent large shipments will partly serve as a cushion against the supply shortage expected to prevail until early 2013," it said. "In particular China appears determined to take precautionary measures by maximising imports as long as the supplies are available on the world market."

High prices are likely to cut demand for soymeal animal feed especially in the United States and Europe while strong Asian soymeal demand is likely to be harder to dent, it said.

High prices are also likely to encourage Brazilian and Argentine farmers to plant more soys for their harvests in early 2013, it said.

"A steep increase in South American soybean production in prospect for early 2013 will encourage consumers to postpone purchases as far as possible by reducing stocks and/or by lower consumption to take advantage of new crop supply pressure possibly developing...from late 2012 onward," it said.