April 18, 2007

 

New-crop soy futures at CBOT carry additional downside risk

 

 

New-crop soybean futures at the Chicago Board of Trade may drop by more than 60 cents per bushel from current levels, if the 2007 soybean crop lives up to its full potential, says University of Illinois extension marketing specialist Darrel Good.

 

"November 2007 futures may have risk down to near the US$7.20 area," he said in a weekly market outlook released Monday (Apr 16), when the contract closed at US$7.82 1/2.

 

Prices paid for cash soybeans across the US have already declined sharply over the past couple weeks, falling more than 40 cents per bushel since the March 30 release of a grain stocks and prospective plantings report from US Department of Agriculture that was originally viewed as friendly to the soybean market.

 

"Two important and related factors have contributed to the decline. These are the decline in the rate of consumption of US soybeans and the much larger soybean production estimates for South America," Good explained.

 

The USDA now expects the domestic soybean crush to total just 1.765 billion bushels during the 2006/07 marketing year, 15 million less than the projection that had been in place since November.

 

"The smaller forecast for domestic crush reflects anticipation of a slowdown in both domestic and export use of soymeal," said Good. "The USDA lowered the projection of marketing year soymeal consumption by 600,000 tonnes or 1.4 percent. Domestic use is expected to be negatively impacted by declining livestock feeding margins, while exports will face competition from increased supplies from South America."

 

The USDA now projects total exports of US soybeans at 1.08 billion bushels, 20 million bushels less than were forecast in March and 65 million less than the largest forecast made in December 2006. Export shipments of US soybeans--which had averaged 21.5 million bushels per week during March--dropped to just 12.5 million bushels for the week which ended April 12.

 

A further slowdown in export demand is expected, as competing supplies from a huge South American harvest become available to foreign buyers. The USDA now projects the 2007 South American harvest at 4.135 billion bushels, 310 million bushels larger than the record harvest of 2006.

 

"That crop will result in much smaller exports of US soybeans through at least September 2007," warned Good.

 

Consequently, surpluses of US soybeans at the end of the current marketing year are projected at 615 million bushels, representing 20.3 percent of projected consumption and about triple what is normally considered to be adequate for market needs.

 

"Even with the recent decline in prices, soybean prices remain about US$1.50 above the level that would have historically been expected by the size of the current surplus," he said, explaining that prices are being propped up by a bullish soyoil market. "General strength in vegetable oil prices, particularly palm oil prices, due to expanding world biodiesel production, along with high crude oil prices, account for the strength in soyoil prices."