June 14, 2012

 

Asia's soy prices likely up in coming weeks

 

 

Due to tight supply, soy prices are likely to move up in the next few weeks and may test a four-year high above US$15/bushel, trade participants and analysts said.

 

Soys are the market leader in the grains complex because the tight supply is likely to last until at least the next South American harvest in February, said an importer in Malaysia's Penang province.

 

The premium that the near-month July soy futures contract on the Chicago Board of Trade (CBOT) is commanding over the November contract also points toward bullish sentiment and low inventories.

 

The widest premium that July had over November soy was US$0.134/bushel on May 17, and the narrowest was US$0.67 on June 1. It has again climbed and is now around US$1/bushel.

 

The USDA in its monthly report Tuesday (June 12) lowered its forecasts for the country's soy inventories both at the end of the marketing year on August 31 and also for a year later while leaving output projections unchanged.

 

Soy inventories in the US, the world's largest exporter, are now projected at 4.77 million tonnes by end-August, down 17% from a previous estimate. They are expected to fall 20% on year to 3.80 million tonnes on August 31, 2013, the USDA said.

 

The market is coming to grips with the fact that the global soy supply and demand situation could become critical prior to next February, said Karl Setzer, an Iowa-based commodities research analyst with MaxYield Cooperative.

 

"I don't want this to sound like a 'the sky is falling' outlook, but the chances of global soy inventory hitting the tightest level in recent history is possible," he noted.

 

This is particularly applicable to the US, where the next crop's closing stocks are already pegged at an abysmally low level below four million tonnes. If the actual yield is two bushels per acre below the historical average in the upcoming harvest of August-September and demand in China is above normal, it can wipe out the US inventory.

 

Importers are more dependent on the US than usual for meeting their soy needs because of a severe drought in South American countries, said Kaname Gokon, Tokyo-based deputy general manager at Okato Shoji Co.

 

China is already buying more soy than it would have normally done at this point of the year because importers are taking into account the depletion of global inventories and the smaller crop in South America, a Singapore-based executive with a global commodity trading company said.

 

Analysts point out that just as corn stock levels were critically low a year earlier, soys are facing a similar situation now. Several financial investors have maintained their long soy positions while exiting from other agricultural commodities, indicating that they are still bullish on this particular crop, said MaxYield's Setzer.