October 7, 2010

 

CBOT soy prices reignited by continued Brazilian drought

 

Seedings in Mato Grosso, the top soy-producing state in Brazil, have been delayed by three to four weeks due to a lack of rain and soil moisture for germination, said Thomas Mielke, Oil World executive director.

 

He stressed that some areas in Mato Grosso had gone 150 to 170 days without rainfall since March.

"We need replenishing, widespread rainfall and if it does not come, this could be the bullish surprise in the market," Mielke said on Wednesday (Oct 6).
 

"We are just at the edge of where we can go from ample supplies into short supplies if the second-biggest soy producer in the world, Brazil, has problems," he said.

 

Prices of CBOT soy have since slipped to US$10.62. Pressure from a record-large US soy crop being harvested may cap prices in the near term, but all eyes will be on Brazil's weather amid growing demand from top importer China.

 

Meanwhile, good planting-season rains in Argentina, the world's top exporter after Brazil and number one grower after the US, have alleviated worries about dryness at the moment, Mielke said.

 

"However, there is long-term concern that it may become dry in critical growth periods in November-January or November-February due to La Nina," he said.

 

Oil World forecasts Argentina's soy crop at about 52 million tonnes, down from 54.5 million tonnes last year, and Brazil's crop at 65-68 million tonnes depending on near-term planting weather, down from 69 million tonnes last year.

 

Any decline in South American production exceeding six or seven million tonnes could ignite a rally in which might push soy prices above recent highs, Mielke said.

 

Delayed seedings may also stress Brazil's tightly stretched grain transport infrastructure come harvest, which may drive up prices in the cash market.

 

"We don't see a major impact in terms of yields for soy, but that might impact our transportation systems as we get soybeans harvested in late February," said Marcelo Duarte Monteiro, executive director and CEO of Aprosoja, Mato Grosso's soy producers association.

 

"It could also impact our second crop. It's not safe to plant corn after the beginning of March so we might see low-tech corn being planted or they might decide not to plant because we are almost one month late on our season," he said.

 

Aprosoja projects 65-69 million tonnes of soy crop in Brazil, higher than the current US Agriculture Department forecast of 65 million tonnes. The USDA will issue its October world supply/demand forecast on Friday.