August 28, 2012

 

Global soy prices to remain bullish due to drought

 

 

As the impact of a historic drought in the US Corn Belt may be worse than forecast earlier, soy prices, which posted strong gains of 5% last week on the Chicago Board of Trade, may continue to remain bullish.

 

In a report on Monday (Aug 27), Morgan Stanley Commodity Research said a recent trip to major US corn growing regions confirmed the firm's bullishness on the crop, and reinforced the view that the USDA may have to make further cuts to 2012-13 production estimates.

 

Morgan Stanley added US production may be at further risk as on-year comparisons of yield results in the northern states of South Dakota and Minnesota, "generally expected to be the beneficiaries of better weather, proved less than stellar, and leaving even more risk to overall US production."

 

Agricultural advisory firm Pro Farmer last week forecast US soy production will fall 14.9% to 2.60 billion bushels, with an average national yield of 34.8 bushels an acre.

 

The figures are below the USDA's forecast this month for production of 2.69 billion bushels and yield of 36.1 bushels an acre.

 

The broad consensus on poor yields this year resulted in CBOT soy for September delivery settling US$0.1025 or 0.6% higher at US$17.3750 a bushel on Friday (Aug 24). November soy rose US$0.1650, or 1%, to US$17.3150 a bushel.

 

Global soy inventories have already been stretched by a drought-related decline in production earlier this year in top exporters Brazil and Argentina.

 

Unlike corn, where record prices have cooled demand for the grain, soy demand from end-users such as importers and domestic processors has not been hit by high prices.

 

Last Friday (Aug 24), the Kaohsiung branch of Taiwan's Breakfast Soybean Procurement Association bought three cargoes totalling 173,000 metric tonnes of US and Brazilian soy from Agrex and Bunge for November, March and July shipment.

 

It is rare for Taiwanese importers to buy more than one cargo of soy at a time, and even that is usually for shipment within two to three months.

 

In Australia, rainfall could halve the wheat crop in Western Australia, the top wheat exporting state, in the 2012-13 crop year, according to forecasts by one of Australia's largest banks.

 

ANZ senior agricultural analyst Paul Deane said Western Australia's wheat output could fall to six million tonnes in the crop year that began April 1--almost half of the 11.6 million tonnes grown last year and down from his current forecast of eight million tonnes--if plants do not get rain over the next month.

 

Latest official government forecasts from June expect a Western Australia winter wheat crop of about 8.6 million tonnes.

 

"Yield potential is already well below trend in the northern and eastern wheat belt due to the late start to the season and one of the driest Julys on record," Deane said. "Production prospects for the Western Australian wheat crop are delicately poised."