December 27, 2006

US soybean prices may reach 1970s highs as farmers grow more corn

US soybean prices may be headed for their biggest jump in three decades as farmers plant more fields with corn.

Growers in the US have been preparing to sow the fewest acres of soybeans in 10 years. Incidentally, increasing demand might double this year's average price of US$ 5.98 a bushel and allow soybeans to replace corn as the best-performing farm commodity.

Higher prices in the US would boost costs globally as soybean futures on the CBOT are the benchmark from Sao Paulo to Tokyo. Canola and palm also will rise, increasing expenses for the world's largest vegetable-oil producers, Archer Daniels Midland and Bunge.

Grain processors and speculators are betting soybeans, used in about 60 percent of the processed food consumed by developed nations, will outperform corn during the next 11 months.

The shift in US crops next year will be similar to 1976. Farmers that year increased the land used for corn by 7.5 percent and reduced soybeans by 7.9 percent. Grain supplies at the time shrank after two years of harsh weather and rising imports by the former Soviet Union.

As more acres are diverted to corn, the picture for the soybean balance sheet might get tighter. Not everyone is convinced there would be a soybean shortage. Brazil and Argentina, who together account for 43 percent of the world's supply, might produce bigger crops, and a price rally before US planting begins by April might encourage farmers to cancel plans to switch to corn.

Farmers in China, the world's largest soybean importer, might also favour planting more corn than soybeans next spring if the gap between corn and soybean prices stays at the current level, said Hanver Li, managing director at Shanghai JC Intelligence.

Corn acreage would rise by 2 to 3 percent while the area sown to soybeans would decline by 3 to 5 percent, according to Li.

China would then import more soybeans next year to feed hogs and chickens and produce cooking oil because demand will outstrip domestic supply, he said. Soybean imports might rise by 12 percent to 31.7 million tonnes in the year ending September 2007.