August 29, 2012

Global soy prices continue their upward potential following new highs because supply shortages mean demand will be squeezed in coming months.

US soy hit new contract highs this week after key tour of experts in the Pro Farmer team concluded the drought damage to the US soy crop is worse than US government forecasts.

"They (soy) have further upward potential in the near to medium term on bullish fundamentals," Oil World said. "Futures prices are vulnerable to temporary setbacks on profit-taking. But these setbacks are likely to be limited, particularly as long as demand has not been sufficiently rationed."

US soy and corn futures hit record highs this summer as scorching temperatures and drought ravaged crops in the US, while drought also cut soy harvests in giant exporters Brazil and Argentina.

"The global supply tightness of soy is unprecedented and will result in a decline in world exports by approximately 8-9 million tonnes in September 2012-February 2013 as well as in unusually small world stocks of soy in early 2013," Oil World said.

"However, relief will come from a bumper South American soy crop which under favourable weather conditions could be boosted to 152 million tonnes in early 2013 from the drought-reduced 116 million tonnes in early 2012." But in the meantime, supplies are shrinking.

Soy stocks in Brazil, usually the second largest exporter after the US, are forecast by Oil World to fall to 15.59 million tonnes on September 1 from 26.15 million tonnes on September 1, 2011.

Soy stocks in the second largest exporter Argentina will fall to 18.50 million tonnes on September 1 from 26.10 million tonnes same period last year, it estimates. Demand will have to adjust in the time before the new South American harvests arrive in early 2013, Oil World said.

"US soy producers and exporters will be unable to satisfy world import demand in September 2012-February 2013 owing to lack of supplies," it said.