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China Demand Boosts Beans

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The humble soybean is seeing another price surge that is ignoring the world recession and could push food prices higher. A smaller South American soybean crop, which is now being harvested, and China’s voracious appetite for soy products among its growing and increasingly affluent population, pushed U. S. soy prices to a six-month top last week.

“Those are some very potent bullish fundamentals. The market has to ration demand and there is no evidence of that here today,” said Dan Basse, president of consultancy AgResource.

Chicago Board of Trade soybeans soared to $10.59 a bushel April 16, but had pulled back along with other crops early last week.

The latest rally has traders nervously thinking back to 2008, when commodity markets were on fire. Grains, oilseeds, crude oil and gold all soared to record highs amid strong global demand for food and an unprecedented inflow of fund money as investors looked for a hedge against inflation.

The current rally in soybeans is more subdued, with prices driven largely by one basic concern: too few beans.

“The extent of the advance with only minimal setbacks has all the characteristics of a classic demand bull market,” said Rich Feltes, senior vice-president at MF Global Research.

Soybeans started the latest leg up on the rally on March 31 when USDA jolted traders by predicting American farmers would seed three million fewer soy acres in 2009 than analysts expected.

On the same day, USDA also reported March 1 U. S. soy stocks at 1.3 billion bushels, down nine per cent from a year earlier. Analysts said that was a direct effect of Chinese demand.

“China has been buying to build up state reserves of beans,” said Anne Frick, Prudential Bache Commodities analyst, noting China’s own crop isn’t large enough to meet its needs.

“They’ve bought, by estimates, four million tonnes of the domestic crop to store which has raised the domestic soybean price in China, so crushers have been buying imported beans because they’re cheaper.”

The United States and Brazil, the world’s top two soybean exporters, have benefited the most from China’s buying spree.

China booked near-record monthly imports in March and will likely repeat that pattern in April, traders said. And China has grown reluctant to source soybeans out of Argentina, the third-largest soy exporter after unrest between Argentine farmers and their government over a soy export tax disrupted marketings in that country.

This season’s expected Brazil and Argentine combined soy harvests of 96 million tonnes will also be down 10 per cent from 2008. The Argentine crop was hardest hit by a severe drought.

OLD-CROP SOYBEANS AT $12?

China stockpiling, a short South American supply, lower-than-expected U. S. plantings – it all adds up to bullish fundamentals, especially on a key number: U. S. soybean supply.

USDA currently forecasts U. S. soybean stocks on Aug. 31, before the fall harvest, at 165 million bushels – a mere 20-day supply and the lowest supply in five years.

But, given recent demand, that number could shrink as low as 120 million bushels, some analysts say. USDA projects world soy stocks will be seven million tonnes lower than last year.

“The Chinese after last year’s inflationary spiral are now saying we need to hold grains as reserves,” Basse said. “With 1.3 billion people, if you have a weather problem how do you feed everybody?

“If we close May beans above $10.40 this week, it sure would probably be a vote that we’re heading up closer to $12,” he said April 16.

Other analysts agreed old-crop CBOT May, July or August soy contracts could trade in the $11 to $12 range before September but are unlikely to breach last summer’s high of $16.

Favourable weather and a continuation of the recent strong trend in grain prices may entice farmers to seed more corn and soy than the total 161 million acres now projected.

Traders are also wary of China “switching” U. S. soy bookings to Brazil or even withdrawing its business.

“That would bring a corrective tone into the market,” Feltes said.

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