Will Soybean Prices Explode, Hitting $16 Again?

April 10, 2012 09:28 PM
 
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Tight world soybean stocks—which tightened further over the past month—could lead to much higher soybean prices. USDA’s Agricultural Supply and Demand Estimates (WASDE), released Tuesday, April 10, show continued deterioration in new-crop corn and soybean production in South America.
 
"The soybean situation is explosive," says Peter Georgantones, Abbott Futures, Minneapolis. With weather issues, Georgantones says U.S. soybean prices could break $15, even $16 per bushel.
 
"We continue to see the La Nina impacts affect corn and soybean production in South America," says Chad Hart, agricultural economist with Iowa State University. La Nina, which has caused dry conditions from the U.S. southern plains to Brazil, is also responsible for a 1.5-million-metric-ton reduction in corn production in Mexico.
 

Exploding Soybean Prices

World soybean production has slipped as well to 245.07 million metric tons, down from last year’s 264.22 million metric tons. USDA now estimates that Brazil’s soybean production will come in at 66 million metric tons, a 2.5 million drop from last month’s estimate due to drought conditions in Rio Grande do Sul. USDA also reduced production prospects for Argentina and Paraguay.
 
Declines in soybean production have led to tight world stocks. USDA estimates 2011-12 soybean ending stocks at 55.52 million metric tons, down from last month’s 57.3 million metric tons, and substantially lower than last year’s 69.12 million metric tons.
 
"Bulls have room to run," says Hart, who is considering raising his forecast for the U.S. average soybean price. Currently he expects U.S. soybean prices to average above $13 per bushel. "USDA has taken big chunks out of the South American soybean crop," notes Hart. Argentina’s bean crop is projected to be 8 percent smaller than last year’s crop, while Brazil’s is 13 percent smaller. "Paraguay’s crop is about 50 percent smaller compared to the 2010-11 crop," he adds.
 
While Hart does not expect the report to cause U.S. corn and soybean producers to shift crops, he does say that producers will now have an easier time shifting to beans if there are any delays in corn planting. "Things look good on both sides of the crop ledger," he adds.
 
Adverse conditions in South America’s soybean-growing regions are likely to shift export business to the United States as well. "Anytime South America loses bushels, we gain them on the export side," says Hart.
 
Georgantones characterizes world soybean stocks as "extremely tight," and says predictions for the 2013 U.S. soybean carryout are now between 100 million and 120 million bushels. "We could even see 70 million bushels before it’s done," he adds. USDA will provide its first estimate of the 2012-13 carryout in its August WASDE report.
 
"China has decided to grow corn this year instead of soybeans and now there is severe drought in China’s corn-growing region," Georgantones says. "China will be a big buyer of soybeans this year." And when U.S. cash corn prices dip into the low-$5 range, which is about half of what beans are currently selling for in China, Chinese importers will come looking for U.S. corn.
 

Global Corn Stocks Tighten, Too

USDA left global corn production virtually unchanged due to production increases in some parts of the world that offset declines in Latin America. The department raised corn production by 1.7 million tons in Egypt, 600,000 tons in Indonesia, 400,000 tons in Cambodia, and 200,000 tons in both Colombia and Thailand. Offsetting those gains, however, were Mexico’s 1.5-million-ton decline as well as 500,000-ton reductions in Argentina and South Africa, a 400,000-ton drop in Venezuela, and 300,000 fewer tons in Laos.
 
World 2011-12 corn ending stocks of 122.71 million metric tons continue to tighten, too. USDA shaved 1.82 million metric tons, or 1.5%, off world corn stocks, leaving the global corn supply about 1.5% smaller than a year ago. 

 

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See all of the data, coverage and analysis of today's World Agricultural Supply and Demand Estimates and Crop Production reports.

 

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