October 27, 2010

US soy prices vulnerable to setback

Soy futures are vulnerable to temporary price setbacks despite strong Chinese buying as recent rain has improved the crop outlook in South America, Hamburg-based oilseeds analysts Oil World said.

US soy futures had set a 14-month-high on October 20, partly because of high sales to China and the weak dollar.

The market had also started to factor-in potential crop losses caused by dryness in South America as a price-supporting factor, remembering the experience of two years ago when the South American soy crop was cut by around 30 million tonnes by a devastating drought, Oil World said.

"However, this year there is a major difference," it said. "In September and early October 2010, very beneficial rains created favourable soil moisture in most of Argentina as well as in at least half of the Brazilian soy growing states."

At the same time in 2008, South American crop weather was much dryer, so it was too early to write off South American crops this season. Increasing realisation of this could make soy vulnerable to at least a temporary price setback, it said.

Meanwhile, heavy Chinese soy purchasing in recent weeks had suggested that demand from China's crushing industry was rising at a faster than expected rate, it said. But this could also be insurance being taken against any further weather damage to Brazilian and Argentine crops, it added.

"We assume that it is also in the interest of the Chinese government and the major players to further accumulate stocks of imported soy as a hedge against weather-caused production problems in South America in recent months," it said.