August 17, 2004


US Soybean Prices Set To May Fall


Soybean prices in Chicago may fall for the seventh week in eight on speculation that warmer Midwest weather and ample rains will improve yield potential for the second-biggest U.S. crop.


Twelve of 18 farm advisers, grain merchants, traders and fund managers surveyed Friday recommended selling soybeans after meteorologists said most of the country's soybean growing regions are in up to 1.5 inches of rain this week.


The crop "could be bigger than people think because we have plenty of soil moisture," said Kent Jessen, grain manager for Heartland Cooperative in Des Moines, Iowa. "The good spots may not be as good as last year, but there are no big problem areas to worry about this year."


Soybean prices rose 19 cents last week, climbing 3.4 percent, to finish on Friday at $5.8075 a bushel on the Chicago Board of Trade, based on supplies for delivery in November, after the U.S. harvest.


Futures reached a one-year low on Thursday and have tumbled 45 percent from a 15-year high of $10.64 a bushel on April 5 because of expectations farmers would harvest a record crop. Prices jumped 5.5 percent on Thursday, the biggest gain in ten weeks, after the U.S. Department of Agriculture unexpectedly cut its estimate for this year's crop.


Reduced Crop Estimate


Farmers will harvest 2.877 billion bushels of soybeans this year, down from 2.94 billion bushels estimated last month, the government said. Eighteen analysts in a Bloomberg survey had predicted a crop of 2.959 billion bushels, on average. The estimated crop would be 19 percent above last year's drought- damaged harvest and just below the record production of 2001.


Temperatures will rise to normal this week from Nebraska to Indiana after a week of record-setting lows raised concerns an early frost would reduce yield potential. As much as 1.5 inches of rain (3.8 centimeters) was forecast to cover 70 percent of the Midwest, improving soil moisture and yields.


"The weather pattern I see is nearly ideal for crop development," said Charlie Notis, a meteorologist for Freese Notis Weather Inc. in Des Moines, Iowa. "It looks like a prolonged warm weather pattern through the end of August."


The return to more normal temperatures may be the start of a new pattern that would reduce the threat of an early frost, Notis said.


China Demand


Soybeans may also fall because of reduced demand from China. That nation will harvest a record soybean crop of 17.5 million metric tons this year, or 643 million bushels, after high prices encouraged more plantings, the Agriculture Department predicted in a weekly supply and demand report on Thursday. A crop of that size would be 9.4 percent bigger than last year and would reduce demand for supplies from the U.S., Brazil and Argentina.


Chinese soybean imports will fall 21 percent to 16.9 million tons in the year ending Sept. 30, from a record 21.4 tons in the previous year, the department estimated. That's down 6.1 percent from last month's prediction. China is forecast to import 23 million tons next year, down from last month's estimate of 24 million.


"People are worried about Chinese demand," said Roy Huckabay, a grain analyst for The Linn Group in Chicago.

"China will be slow to buy with a record crop at home" to satisfy immediate processor supply needs, Huckabay said.


Corn Futures


Corn prices may hold steady after falling in seven of the last eight weeks. Corn for December delivery fell dropped 3.6 percent last week to close at $2.285 on Friday. The most-active contract has fallen 33 percent from a seven-year high in April on expectations for a record U.S. crop. Corn reached a nine-month low July 30 at $2.25 a bushel.


Ten of 20 farm advisers, grain merchants, traders and fund managers surveyed Friday recommended buying corn, citing record domestic feed and ethanol demand and improving export sales. The other ten survey participants said the rain and warmer temperatures expected this week will boost yield potential and push prices lower.


This year's corn crop will be 8 percent bigger than last year's at 10.92 billion bushels and the biggest crop ever, the government said last week. It would be the first time the U.S. has had back-to-back record crops.


World corn demand will exceed consumption for the fifth straight year, reducing surplus global inventories before the crop year that begins in October 2005 to 85.7 million tons, the government said. That's would be a 55 percent decline during the five-year period.


"I continue to be on the buy side of the market," said Shawn McCambridge, a senior grain analyst for Prudential Securities in Chicago. "This week's failure to test the contract low, despite the USDA production estimate at record levels, indicates an interim bottom."


McCambridge said the government's production estimate may not hold up once the characteristics of this year's crop, including the size of ears being produced, are considered.


Corn is the biggest U.S. crop, valued at $24.8 billion last year, followed by soybeans at $17.5 billion.