July 3, 2012


Asia's soy prices likely up over US Midwest weather



As most investors may continue to shrug off a somewhat bearish soy acreage report by the USDA in favour of rising weather-related supply risks in the US Midwest, Asian soy prices will likely sustain a recent rally in the coming weeks.


July soy futures on the Chicago Board of Trade rose by about 3.2% Friday (June 29) to settle at US$15.1275 a bushel, the highest close for the front-month contract since July 2008. November soy, which represents US supplies to be harvested this fall, rose US$0.2425, or 1.7%, to US$14.2775 a bushel Friday (June 29), up 12% in the month of June.


The USDA Friday raised its estimate of planted soy acreage to 76.1 million acres this year, up from its March forecast of 73.9 million acres. But on-going drought conditions will likely erode output, prompting investors to discount the increased area, Rabobank said in a research note Monday (July 2).


Episodes of hot to very-hot temperatures, especially in the eastern and southern areas of the US Midwest, could continue to impact crops such as soy, for much of this week, meteorologists at Telvent DTN said Friday (June 29). Hot and dry conditions have been affecting Midwestern crops for the past two weeks.


As supplies from South America become more limited because the bulk of the crop has been sold and as US production risks intensify threatening yields, soy prices will likely edge higher, said a Tokyo-based trader.


"For soy, we believe that the fundamental situation for the new crop is tighter than corn. Even when we take into account the improved acreage estimate and better-than-expected soy stocks, we still have 2012-13 US soy ending stocks at 136 million bushels," Macquarie said in a research note Friday.


The USDA earlier this month estimated 2011-12 US soy ending stocks as of August 31 at 175 million bushels.


"The fundamental backdrop is very solid--global supplies are limited and demand from Asia, particularly China, will likely remain strong," Standard Chartered commodities analyst Abah Ofon said, adding that US$16 a bushel is a "reachable" price target in the coming weeks.


"Our outlook for a 2012-13 US soy balance in deficit and a US corn balance in surplus leads us to expect soy prices will outperform corn prices, especially following their recent under performance, Goldman Sachs said in a note Friday.


"Given our higher corn price forecast, we are raising our three-12-month soy price forecast from US$14.30/bushel to US$15.50/bushel above the forward curve," it said.

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