November 15, 2004

US Soy Prices Up On Rust News

Threats posed to the long-term health of the U.S. soybean industry by Asian soybean rust rallied cash prices by 4% this week, despite such bearish short-term factors as an on-going harvest, slower exports, increased farmer selling and government confirmation of a record large crop.
 
Soybean futures at the Chicago Board of Trade soared after the U.S. Department of Agriculture Wednesday confirmed the presence of the rust disease in Louisiana.
 
"It's really scary," Bob Worth, vice president of the Minnesota Soybean Growers Association, told the Associated Press. "It could be devastating for the American farmer."
 
As no resistant soybean varieties have yet been developed, the air-borne fungus - apparently spread to the U.S. by hurricane winds from infected fields in South America this summer - can be controlled only with fungicides, boosting input costs 15% to 20%.
 
Without spraying, farmers could easily lose 50% to 70% of their soybean crop, Geir Friisoe, a plant protection manager for the Minnesota Agriculture Department, told AP.
 
"Some guys have told me they will probably just avoid the whole rust mess and not plant beans at all," said a Nebraska grain buyer. The U.S. is currently the world's single-largest producer of soybeans.
 
Prospects for a long-term decline in pipeline supplies of U.S. soybeans resulting from disease-reduced yields and/or decreased plantings immediately generated a bullish mindset among CBOT soybean traders, who hoisted Jan contracts by 19 3/4 cents this week.
 
Similar concerns among end-users raised interior and CIF soybean basis by as much as one cent - despite of a doubling in terminal-level harvest receipts, a 27% drop in weekly export inspections and revised USDA forecasts calling for an unprecedented 2004 soybean crop totaling 3.15 billion bushels.
 
In contrast to excitement in the soybeans market, cash prices paid for corn, grain sorghum and wheat quietly finished no more than a few pennies above or below week-earlier levels.
 
With export inspections running at about double last week's volume, corn/milo prices held firm, even though country movement grew and the USDA ratcheted up harvest forecasts for both feed grains.
 
Cash wheat prices were mixed, as 1 1/2- to 3 3/4-cent declines in cash contracts on the futures market were met by increases of up to six cents in spot basis.
 
Tight supplies of high-protein wheat pushed up the value of HRW and HRS wheat at the farm gate by as much as 1%, lifting basis to its highest level of the year in many areas.
 
The spread between Dec HRW and SRW wheat stretched to over 45 cents a bushel, or more than double its level of late October, a trend which Spectrum Commodities analyst Louise Gartner attributes to concern about heavy vomitoxin contamination of the 2004 U.S. SRW crop.
 
The pathogen, created by a fungus that causes scab disease in wheat, has made buyers wary of SRW on the world export market, where tolerances generally call for vomitoxin concentrations of less than two parts per million.
 
"With five ppm allowed on the Chicago Board of Trade futures contract, it appears that there could be a significant amount of wheat delivered at that exchange that can only be used for feed," said Gartner.
 
The U.S. Department of Agriculture said Tuesday that so-called "visible supplies" of wheat in surveyed grain terminals and elevators declined 5% last week, despite increases of 11% to 25% in commercial inventories of corn, milo and soybeans.
 
USDA raised its forecast of the U.S. corn crop by more than 1% Friday to a record-large 11.741 billion bushels. The agency also increased its estimate of the domestic grain sorghum harvest by more than 2% from last month, to 472 million bushels - although the stated size of this year's wheat crop was placed at 2.158 billion bushels, down fractionally from October.
 
With larger domestic production now all but assured, USDA also raised its outlook for season-ending corn, soybean and milo surpluses. Wheat carryovers - although slightly below levels projected in October - were generally larger than expected.