November 7, 2005

 

Lagging US soybean exports raise concerns

 

 

US soybean export sales pace for the 2005-06 marketing year has stumbled out of the starting blocks, raising concerns among industry analysts that the USDA's aggressive demand profile may be overstated.

 

The soybean market has struggled to find the strong consumption pace seen at the same time last year, as the market attempts to draw down supplies from potentially the second-largest harvested soybean crop in US history.

 

The slower-than-expected export pace that the market is facing could limit upside price potential as industry participants start shifting attention to demand fundamentals.

 

Analysts say a reduction in export forecasts coupled with an expected rise in 2005 production estimates could translate into non-threatening carryover inventories, making it tough to propel prices during the winter doldrums.

 

Export demand is seen as key to soybeans' price recovery near term, but US soybean exports have been lagging last year's pace, as the market did not see a build up of pre-season purchases once the marketing year changed over, said Joe Victor, analyst with Allendale Inc. in McHenry, Illinois.

 

In October, the USDA projected 2005-06 US soybean exports at 1.12 billion bushels, up 20 million bushels from 2004-05 marketing year export total. Weekly export commitments and shipments through Oct 27 are currently running 24 percent behind last year's pace, according to the USDA.

 

The early slump in sales has a great deal to do with China, the no. 1 soybean customer of the US and the world. US soybean sales to China are currently running 30 percent behind last year.

 

"China is still the big dog, as they remain the majority buyer in the market," said John Kleist of Kleist Ag Consulting. The difference between this year and last year is that China learned to be a smarter buyer, with much more measured buying patterns that don't jolt world prices when a purchase is made, added Kleist.

 

Large available nearby US supplies, carryover inventory from South America and the potential for reduced feedings overseas due to bird flu and foot-and-mouth disease have not presented any urgency for world importers to aggressively forward-book shipments of soybeans.

 

Nevertheless, the decline in the export pace cannot be pinned on bird flu, as sales to countries reporting bird flu are down 25 percent and purchases by countries unaffected by bird flu are down 33 percent, said Victor.

 

"With all the talk of bird flu and wholesale poultry slaughters in Asia, the USDA reported 304,700 tonnes of soymeal was sold in the week ended Oct 27, providing encouragement that lost demand to Asia may be more fear than reality," said Tim Hannagan of Alaron Trading in Chicago.

 

The market is expected to take its cue from consumption needs through the winter months, with world importers watching closely for a sign of price attractiveness.

 

Any type of a post-harvest rally in CBOT soybean futures prices is expected to be a tough accomplishment without export demand. The market has to keep prices moving in relation to consumption as the market is still in the process of building a demand base, said Kleist.