U.S. Soybean Supplies Shrinking

A drought in South America, relentless buying of soybeans by China and steady demand from crushers is shrinking U. S. soybean supplies at an alarming rate and unless exports fade, prices could head even higher.

Chicago Board of Trade soybean futures soared to a 7-1/2-month high of $11.69-1/2 per bushel last Tuesday

“I don’t think some people realize this yet but the drought and China’s demand have dramatically changed the dynamics,” said Jerry Gidel, analyst for North America Risk Management Inc. “Soybean buyers need to get their needs covered over the next four to six weeks and not wait until August or September this year,” Gidel said, of this year’s harvest.

“When you figure in about a 650-million bushel loss for South American production and China keeps buying soybeans, you take down the supply pretty fast,” said Doug Jackson, analyst for trade house FC Stone, Des Moines, Iowa.

“The South American crop losses were unprecedented.” Trade reports last Tuesday said widely followed Memphis-based analytical firm Informa Economics had estimated the U. S. soybean stocks at the current season on Aug. 31 at only 77 million bushels, the lowest in almost 40 years.

Traders said brokerage FC Stone had projected carryover stocks at 75 million bushels, but Jackson neither confirmed or denied the accounts.

“I think most are somewhere in the range of 75 million to 90 million,” he said.

Some analysts see the demand for soy waning before ending stockpiles are drawn below 100 million bushels.

“Our thinking is more in line with USDA’s 130 million. We think there will be some cancellations of old crop and a shift to new-crop buying,” said Gavin Maguire, analyst for EHedger

“Anything below 100 million bushels is pretty risky and that’s more like $13 to $14 soybeans rather than $11 to $12,”

The U. S. Department of Agriculture (USDA), in its May 12 supply/ demand report, forecast the ending supply of soybeans in the United States for this marketing year (2008/09) at 130 million bushels.

“USDA’s current outlook is only a 16-day supply and the lowest in five years, since 2003/04,” said Joe Victor, analyst for Illinois-based research firm, Allendale Inc.

Victor said that a 77-million bushel carryout would be the lowest since 1972 or almost 40 years when the U. S. soy supply totalled only 60 million bushels.

A carryout of roughly 75 million would last a week or less.

STOCKS TO USE RATIO RECORD LOW

Gidel said the ratio of soybean supplies to the demand for soy – the stocks to usage ratio – will fall to a record low 4.3 per cent, assuming the USDA’s 130-million bushel carryout is correct. “The previous record was 4.4 per cent in 2003/04.”

In the 1972-73 marketing year, when the U. S. soy ending stocks fell to only 60 million bushels the ratio was 4.7 per cent, Gidel said. “There was a big difference in demand then. In ‘72-’73 demand was only 1.28 billion and this year it’s projected at 3.050 billion,” he said.

“We have the smallest carryout in modern history and it’s an explosive situation (for the soybean market), if we have any kind of weather problem this year it will just explode,” Jackson said.

The USDA late last Monday said that only 25 per cent of the U. S. 2009 soybean crop had been planted, well behind the five-year average of 44 per cent.

Wet weather has kept farmers from planting crops in big producing states such as Illinois, Indiana and Ohio as well as in the U. S. Delta and Southeast.

The late plantings can cut into yield potential and begin whittling away at next year’s ending supply of soy, forecast by USDA at a precariously low 230 million.

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