December 9, 2010

 

China's soy demand may trim US stocks

 

 

According to analysts, constant soy export demand, led by China, should prompt USDA to lower its forecast of US year-end soy inventories for a fourth straight month.

 

USDA's current estimate of soy exports for the 2010/11 marketing year is 1.570 billion bushels, already a record high. Yet analysts expected USDA to raise the export figure by 20 million bushels or more, given the current pace of sales.

 

Only three months into the marketing year begun September 1, total sales of US soy have reached 1.204 billion bushels, with China accounting for two-thirds of the total.

 

"The pace that China's been going, they haven't backed off. It doesn't take a lot of imagination to boost that (USDA soy export forecast) by 50-75 million bushels," said Don Roose, president of US Commodities in West Des Moines, Iowa.

 

As a result, USDA looked poised to further cut its US 2010/11 soy ending stocks estimate, currently at 185 million bushels. The agency was scheduled to release its December supply/demand report Friday (Dec 10), at 8:30 a.m. EST (1330 GMT).

 

The average estimate for US 2010/11 soy ending stocks among 20 analysts surveyed by Reuters was 160 million bushels, a drop of 25 million from USDA's November figure. Stocks estimates ranged from 198 million bushels to 98 million.

 

Because USDA was not expected to adjust its US soy production figures until January, analysts fixated on the demand side of the December soy balance sheet.

 

Export sales of soy have helped keep soy futures on the CBOT hovering near two-year highs, with CBOT January soy closing Tuesday (Dec 7) at US$12.85-1/2 per bushel. But the high prices have done little to dent export demand from China.

 

"Give me US$14 beans, and we will ration some demand. Right now, China doesn't care what they pay," said Roy Huckabay with the Linn Group, a Chicago brokerage and research firm.

 

Huckabay pegged US soy exports at 1.675 billion bushels, more than 100 million bushels above USDA's figure, and soy ending stocks at 98 million bushels – the only estimate in the survey below 100 million.

 

Others said USDA was not likely to make such an aggressive adjustment in the December report. Furthermore, some analysts see soy export demand slowing as the tightening US supply projections boost prices.

 

Dale Durchholz, with AgriVisor LLC in Bloomington, Illinois, was the only analyst in the survey who predicted an increase in soy ending stocks, at 198 million bushels.

 

He cited the prospect that China might cancel some of its US soy purchases, especially if South America harvests a big soy crop in early 2011.

 

As for domestic usage, Durchholz said US soy processors may soon scale back crushing operations due to poor profit margins, another factor that could help pad ending stocks.