May 17, 2012

 

Forceful demand strengthens US soymeal basis

 

 

As prospects for tighter supplies due to smaller South American crops make US supplies more valuable, a strong demand base supports soymeal basis levels.

 

"The fundamentals of the soymeal market are rip-roaring bullish," said Bill Nelson, analyst with Doane Advisory Service in St. Louis.

 

Cash soymeal supplies are dwindling down, as seasonal downtime for crushers and smaller crop surpluses for export from South America have end users gobbling up as much of the chick feed as possible for near-term needs.

 

Meal basis is up US$2 a tonne in central Iowa and central Minnesota at US$15 below and US$28 below July futures respectively, cash merchants said.

 

Cash meal basis in the western Midwest is firmer, reflective of the seasonally lower crush pace in Minnesota and Iowa in May. Seasonally, crushers slow plant operations at this time, as export demand shifts to South America and livestock feeding slows after the winter.

 

However, drought-reduced soy production in Brazil and Argentina has cut the amount of available soy for export and for crush. The threat of reduced exports from South America is reflected in stronger US demand.

 

Argentina and Brazil are the world's biggest exporters of soymeal. Not only do traders and analysts expect supplies to be curtailed by the poor harvest, global supplies are expected to be further crimped by growth in domestic demand from these countries' expanding poultry industries.

 

The shift of demand to US shores corresponds with the USDA's upward adjustment in soymeal-export projections, Nelson said.

 

Cash meal basis at St. Louis River terminals ranges from US$3-24 a tonne over July futures, according to data from USDA. Export terminals at the Pacific Northwest are quoting bids from US$30-49 a tonne over July futures, according to USDA.

 

"The firm basis reflects tighter supplies," Nelson said.

 

Earlier this month, US forecasters raised their projection for domestic soymeal consumption by 1% to 30.9 million short tonnes for the year through September 30.

 

The higher domestic consumption is illustrated by the National Oilseed Processors Association's monthly crush report for April released Monday (May 14), Nelson said. NOPA reported 131 million bushels of soy were crushed, up 8.6% from the same time last year. "The crush pace is indicative of good demand for meal," Nelson said.

 

Yet most of the support for prices comes from prospects for tighter supplies down the road, when shorter global bean supplies will make it more difficult to source inventories to process.