December 28, 2004

 

 

US Soybeans Prices Under Pressure From Higher South American Output

 

Soybean prices in Chicago may fall this week on speculation that rains will boost production in Brazil and Argentina, the second- and third-largest growers of the crop, a Bloomberg survey showed.

 

Eleven of 18 farm advisers, grain merchants and traders surveyed Dec. 23 recommended selling soybeans. As much as 3 inches (7.6 centimeters) of rain last week in parts of western Brazil and an inch in Argentina improved prospects for bigger crops, meteorologist Charlie Notis said.

 

"Everything is on target for bumper crops in South America,'' said Notis, co-founder of Freese Notis Weather Inc. in Des Moines, Iowa. "I don't see any major problems developing with normal temperatures for the next two weeks.''

 

Soybean futures for March delivery rose 0.8 percent last week to $5.4825 a bushel on the Chicago Board of Trade, the third straight weekly gain. U.S. farmers, the world's biggest soybean producers, have been withholding supplies in a bid to boost prices that are down 27 percent in the past year following a record harvest.

 

In another survey, nine of 17 traders recommended selling corn on expectations of increased sales by farmers. Corn for March delivery rose 1.2 percent last week to $2.07 a bushel, the third gain in four weeks.

 

Bloomberg's weekly surveys on the direction of corn prices have been correct 54 percent of the time since they began 35 weeks ago. The soybean surveys have been accurate 48 percent of the time since debuting 23 weeks ago.

 

South American farmers are completing soybean planting and harvesting will begin by February. Brazilian production will rise 23 percent to a record 64.5 million metric tons and output in Argentine probably will rise 15 percent to a record 39 million tons, the U.S. Department of Agriculture said Dec. 10.

 

Crop Surplus

 

Corn futures are down 49 percent from a seven-year high in April, and soybeans have dropped 48 percent from a 15-year high the same month on expectations for record U.S. crops.

 

The Department of Agriculture estimates this year's corn harvest at a record 11.7 billion bushels, up 16 percent from a year earlier, and the soybean crop at a record 3.15 billion bushels, a 28 percent gain over 2003.

 

The global corn surplus on Oct. 1 will rise for the first time in five years to 111.7 million metric tons from 95.8 million a year earlier, the USDA said on Dec. 10. The world soybean surplus will be 60.6 million tons, up 55 percent from 39.1 million a year earlier.

 

Subsidies

 

Soybean prices have closed in a range of $5.0525 to $5.61 a bushel since mid-September, and corn has settled in a range of $1.9725 to $2.1725 a bushel.

 

"The sideways action will get traders and farmers optimistic that maybe prices can rally, but global supplies are huge,'' said Robert Utterback, president of Utterback Marketing Services Inc. in New Richmond, Indiana. "We have our farm clients 100 percent sold for both corn and soybeans for both this year and the crop to be planted next spring.''

 

U.S. farmers have collected almost $2 billion in subsidies on 6.95 billion bushels of corn and $243 million of soybean subsidies on 1.06 billion bushels through Dec. 23, reducing financial incentives for farmers to sell at current levels, the government estimates.

 

Corn subsidy payments have averaged 29 cents a bushel and soybean subsidy payments were an average of 21 cents, the Department of Agriculture said.

 

Reserve Inventories

 

When market prices are below the so-called loan rate on corn or soybeans, farmers are allowed to repay commodity loans from the department at a lower rate. The difference between the lending rate and the repayment rate represents a subsidy to producers.

 

Some farmers also may get loan benefits when market prices are lower than the posted county loan rates, allowing the producer to receive a lending-program subsidy without having to take out and repay a commodity loan.

 

Anticipation of increased farmer sales after Jan. 1 will push corn prices lower, said Phyllis Nystrom, a market analyst for Country Hedging Inc. in Inver Grove Heights, Minnesota.

 

Brazil and Argentina will have 13 percent more reserve inventories of soybeans before the harvest begins March 1 compared with a year earlier, the USDA estimates. Surplus stockpiles will be more than twice the five-year average.

 

Brazilian Agriculture Minister Roberto Rodrigues on Dec. 9 asked Finance Minister Antonio Palocci to supplement the 500 million reais already in the 2005 budget proposal to buy unsold crops such as soybeans or to make farm loans. Lawmakers are set to vote on the 2005 budget bill on Dec. 30.

 

Brazilian Purchases

 

"We have no money for that,'' Paulo Bernardo, the lower- house deputy who heads the budget committee, said in an interview in Brasilia on Dec. 22. "How are we going to raise such a big amount?''

 

Brazilian purchases of unsold supplies might be able to slow or reverse price declines, said Roy Huckabay, executive vice president for the Linn Group in Chicago.

 

"If Brazil doesn't put a floor under the market with some type of loan program or support mechanism, then it could lead to more sales'' and lower prices, Huckabay said.

 

Soybean prices may fall as low as $4.50 a bushel and corn might reach $1.95 should Brazil fail to withhold some of its crop, Huckabay said.