February 20, 2004

 

 

US Soybean Prices Surge To 7-Year High

 

U.S. soybean prices surged on Thursday to a near seven-year high following Brazil's announcement to reduce its soybean crop estimate.

 

Soybean prices are likely to continue its upward spiral, as global demand remains strong, agriculture analysts say.

 

Brazil's crop, which is currently being harvested, has been hit by disease and adverse weather. The production cut comes at a time when U.S. soybean supplies are expected to fall to a 27-year low on demand from China and poor U.S. harvests.

 

"The market is focusing on the tightness in the U.S. balance sheet and the shrinking crop in South America," said Anne Frick, an analyst at Prudential Securities.

 

At the Chicago Board of Trade, the benchmark for global soybean pricing, soybeans for March delivery <SH4> settled 25-1/2 cents higher at $8.80 a bushel, after hitting $8.82-1/2, the highest level since June 1997. Soyoil prices hit a 15-1/2-year high.

 

Soybeans are crushed into soymeal and soyoil, which is used in edible oil products such as shortening, salad and cooking oils, and in industrial products.

 

In a surprise move at midday Thursday, the Brazilian government cut its forecast for the current year, which runs from October 2003 to September 2004, to a record 57.66 million tonnes from its previous estimate of 58.76 million tonnes.

 

The new Brazil crop estimate lags the U.S. Department of Agriculture's Feb. 10 forecast of 61 million tonnes.

 

Recent wet weather in Brazil's northern soy-growing region and dry conditions in the south hurt yields, sources noted. Brazilian soy farmers are also struggling with a deadly soy rust that has again sharply reduced yields in some fields.

 

Record purchases of U.S. soybeans by China, the top U.S. and global soybean importer, along with strong U.S. demand for soybeans, have pared U.S. supplies, which were already low due to two years of sub-par harvests.

 

The uncertainty about Brazil's crop also comes at a time when it appears that Chinese soy demand is not waning, despite recent worries that soymeal usage there could drop due to the spread of a deadly bird virus through China and Southeast Asia. Soymeal is a major feed ingredient for chickens.

 

Chinese soybean future prices have rallied during the past 10 days, and China reported this week that its January 2004 soybean imports rose 53 percent from last January, and its January soyoil imports were up 177 percent.

 

The USDA last forecast Chinese 2003/04 soybean imports would hit 23 million tonnes.

 

"It's starting to appear that there won't be any switches by China of U.S. soybean purchases to Brazil or to the new-crop U.S. balance sheet, both because of Brazilian crop problems and because of very high freight rates," said Vic Lespinasse, CBOT floor analyst for AG Edwards & Sons.

 

That scenario means U.S. soy prices must rally to levels that will stem usage, he and other analysts noted.

 

"U.S. soybean exports during the January-August period need to decline by a record 40.7 percent," said Prudential's Frick.

 

"Actually, the decline in the Brazilian crop size should have more impact on the new-crop (2004-2005) U.S. balance sheet than the old-crop balance sheet," Frick added.

 

CBOT new-crop November soybeans ended on Thursday up 10-1/2 cents at $6.68 per bushel.