January 9, 2004



US Soy Prices Still Rally Despite Bumper Harvest


US soy prices may rally following two sub-par U.S. soy harvests and record Chinese soybean purchase, even if the final U.S. 2003 crop estimate due on Monday is above expectations, analysts said.


"The important number is going to be the U.S. crop size," said Anne Frick, oilseed analyst at Prudential Securities.


"My sense is even if the crop increases, it's not going to increase enough to change the tight nature of this year's balance sheet," Frick said.


The U.S. Department of Agriculture is scheduled to release on Jan. 12 its final estimate for the 2002/2003 season U.S. soybean crop, along with estimates for Dec. 1 U.S. soy stocks and its latest monthly world soy supply and demand data.


An average of grain analysts' pre-report estimates for 2003 production was 2.451 billion bushels, versus USDA's last estimate in November of 2.452 billion. The 2002 soybean crop was 2.749 billion bushels, down from 2.891 billion in 2001.


Drought and insects hit U.S. soybeans hard this season, but demand has stayed strong, squeezing U.S. stockpiles.


Analysts expect Dec. 1 soy stocks to total 1.750 billion bushels, compared with 2.114 billion a year earlier.


But they also project 2003/04 end-season soy stocks on Aug. 31, 2004, to fall to only 111 million bushels, about two weeks' supply. USDA's forecast issued in December already projected soy end-stocks at a 27-year low of 125 million bushels.


"We're in such a precarious situation," said Bill Nelson, oilseed analyst at A.G. Edwards & Sons. "If the (Dec. 1) stocks number comes in higher, my feeling is that inevitably we'll still have to ration demand.


"If we were going to get a big surprise in the bean market, a bearish surprise should have shown up in October or November, at harvest time," Nelson added.


"Traditionally, we've gotten the shocker by finding a lot more production at harvest time. The way the market has held up, I think there are slim odds for a bearish report," he added.


Chicago Board of Trade soybean futures have lingered near six-year highs since late October as traders await supply rationing amid strong U.S. crusher demand, strong exports boosted by the weak dollar, and record Chinese demand.


"We took crush down 20 million and took exports up 20 million and left carryout unchanged," analyst Don Roose at U.S. Commodities in Des Moines, Iowa, said of his USDA estimates.


"If the government does take crush down and exports up, that signals that we're going to rely heavily on the imports of soybean meal," Roose added.

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