Soybean growers flood the market

Soybeans are headed for record production for the fourth year running after all-time high harvests in Brazil and Argentina, increasing soybean crop acreage in the United States and rising global stockpiles. As a result, any upside for the commodity looks severely restricted.

Soybean futures for July delivery fell 0.9 per cent to close at US$9.4625 a bushel on Chicago Board of Trade on Tuesday after touching $9.42, the lowest for the most-active contract since October 20. The prices are down 7.5 per cent this year.

With more supply on the way, “we are on the cusp of a break in prices” towards $8 by the US harvest, said Steve Nicholson, a vice president of food and agriculture research at Rabo AgriFinance in St Louis, Missouri.

Pradeep Unni, the head of trading and research at Richcomm Global Services in Dubai, feels the same. “Soybean prices on the Chicago Board of Trade will trend towards $9.79 $ to 9.90 a bushel in the short term and probably head to $8 or lower in the long term.”

Demand for soy-based animal feed also may be slowing after the worst bird flu outbreak in US history killed more than 23.1 million turkeys and chickens in Iowa. Soybean-meal futures are down 35 per cent in the past year.

“As far as soybeans are concerned, selling on every rally is the best option that one must employ,” Mr Unni said. “Day traders must keep a watch on the currency movements and government policies before entering into any trade strategy. Since commodities around the world are priced in the US dollar, a strong currency makes commodities and cheaper and vice versa. Such sharp currency movement can undermine any fundamentals of a commodity.”

Capital Economics in its weekly agricultural commodities update on Tuesday weighed on the bearish mood. “Weakness in the US dollar and rising oil prices would normally be considered positive for agricultural commodity prices. However, despite a 3.5 per cent fall in the value of the US currency and a 5 per cent rise in the price of Brent crude since the middle of April, most agricultural commodity prices have still fallen over the same period.”

US farmers, the biggest producers and exporters, will finish planting the most acres ever during the next month just as Brazil and Argentina wrap up a third record harvest. American producers shifted land away from corn, which is more expensive to grow, judging that soybeans would offer better returns even with prices down 34 per cent in the past year.

“Brazil and Argentina are expected to produce 152 million tonnes of soybeans in 2015, 11 million tonnes higher than the previous year, and contributing to a 35 per cent year-on-year increase in global soybean stocks,” said Mr Unni.

Less than three years after a US drought sent prices to an all-time high, a surge in production has outpaced record demand. Cheaper supplies of animal feed are a boon to hog producers in China, the top importer, and are boosting profit for processors including Archer-Daniels-Midland.

“It’s not difficult to imagine world inventories topping 100 million tonnes,” said Mr Nicholson.

The US department of agriculture’s report showed that US planting was 45 per cent complete on Sunday, up from 31 per cent a year ago.

“The US crop is off to a great start, and that will add to the global surplus,” said Roy Huckabay, an executive vice president at Linn Group in Chicago.

According to the survey, traders expect US inventories before the 2016 harvest to rise to a nine-year high of 446 million bushels (37 bushels equal one tonne), from an estimated 362 million bushels on hand on August 31.

Not everyone is bearish, partly because global demand has been a record for seven straight years. US export sales of soybeans for delivery by September 1 jumped 11 per cent from the same period a year earlier, while sales of soybean meal rose 13 per cent, US department of agriculture data showed.

Improved demand from China has helped soybeans outperform corn and wheat this year, partly because US growers were reluctant sellers, said Bruce Weber, the director of soybean products and exports at Minnesota-based CHS, the largest farmer-owned cooperative.

Farmer-held inventories on March 1 were 60 per cent higher than a year earlier at 609 million bushels, the most since 2010, the USDA said on March 31.

“Demand has been good, and it has taken longer to fill the pipeline than expected,” Mr Weber said. “Supplies don’t count until farmers sell.”

There are signs that buyers are seeking cheaper alternatives, especially from South America. US sales for delivery after September 1 totalled 4.324 million tonnes on April 30, down 44 per cent from a year earlier and the smallest for the date since 2010, USDA data show. Advance sales commitments for soybean meal delivered after October 1 are 43 per cent lower.

Total production in South America is estimated at a record 166.4 million tonnes, up 7.4 per cent from last year and 44 per cent larger than in the 2011-12 season, the USDA said last month. The department may boost that estimate to as much as 170 million tonnes after late-season rain boosted yields in Brazil and Argentina, the biggest growers after the US, said Pedro Dejneka, the managing partner for AGR Brasil, a unit of Chicago-based AgResource.

Further limiting the appeal of US supplies has been a rally in the dollar, which makes soybeans more expensive for buyers with other currencies. Since September 1, the dollar rose 25 per cent against the Brazilian real and 6.2 per cent versus the Argentine peso.

“Disposing of US supplies will be more difficult with increased competition from South America,” Mr Dejneka said. “Supply growth is exceeding demand, and the dollar strength makes US soybeans less competitive. We may see prices near $8 at harvest with good US growing weather this year.”

* with Bloomberg News

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