September 4, 2009

Despite US soy supply shrinking to near record lows following a surge in import demand from China this year, and previous weather-related crop reductions in South America, the global market could well be heading for a supply glut of millions of tonnes above global consumption forecasts next year, a senior agricultural commodities consultant said Thursday (September 3).

"The US Department of Agriculture is forecasting a near record US crop - around 88 million tonnes - while Brazil, Argentina and Paraguay between them could produce more than 120 million tonnes, following last year's drought. We're looking at the potential for a big oversupply situation. We could be looking at an oversupply of more than 19 million tonnes above what the USDA is forecasting global consumption to be at next year," said John Baize, president of John C. Baize and Associates.

"Farmers who are selling soy now at US$10.00-US$11.00/bushel, by April could be glad to be getting US$8.00/bushel. They could even be getting less."

A combination of a bumper US crop and increased plantings in South America by farmers who lost money because of last crop year's drought would likely be behind any potential surge in output next year, Baize said.

But "there are also other factors at play - if an El Nino develops, then it could hit palm oil output in Malaysia and Indonesia, which would increase demand for soyoil, though an El Nino, if it happens, usually brings more rain to South America, which would be beneficial to soy crops there," Baize said.