Brazil is poised to surpass the U.S. as the world’s largest soybean grower, expanding a record surplus of the most-consumed oilseed as global output exceeds demand for the fourth time in five years.
Stockpiles used to make animal feed and vegetable oil will surge 18 percent to 72.4 million metric tons by September 2014, the biggest gain in four years and the highest pre-harvest total ever, according to the average of 18 analyst estimates compiled by Bloomberg News. Goldman Sachs Group Inc. says futures traded on the Chicago Board of Trade will retreat 16 percent to $10.50 a bushel in 12 months.
Brazilian farmers doubled output in the past 12 years, accelerating the expansion as prices rose to records in 2008 and 2012. The U.S. crop is rebounding from last year’s drought, and futures are now 30 percent below the all-time high of $17.89 set in September 2012. Cheaper soy may widen margins for chicken producers including Pilgrim’s Pride Corp.
"We are now moving from famine to feast in terms of global inventories," said Randy Mittelstaedt, the director of research at R.J. O’Brien & Associates in Chicago. "Farmers have responded to high prices the last several years with increased plantings and more production."
Futures dropped 11 percent to $12.53 this year in Chicago, compared with a 6.2 percent decline in the Standard & Poor’s GSCI gauge of 24 commodities. The MSCI All-Country World Index of equities rose 17 percent, and the Bloomberg U.S. Treasury Bond Index lost 2.2 percent.
Brazil will produce a record 90 million tons from the crop that Southern Hemisphere farmers start collecting in January, said Michael Cordonnier, the publisher of the Soybean & Corn Advisor in Hinsdale, Illinois. That’s up from 82 million a year earlier and more than the U.S. Department of Agriculture’s estimate in September of 88 million tons. Cordonnier said growers are planting more because soybeans offer better returns than corn, which has tumbled 40 percent this year on the CBOT.
The U.S. soybean harvest, which was 86 percent complete on Nov. 1, will rise to 3.215 billion bushels (87.5 million tons), 6 percent more than in 2012 and 66 million bushels more than the USDA predicted in September, according to the average of 36 estimates in the Bloomberg survey. Yields improved with August rain and warm weather in September and early October, according to the Linn Group, a Chicago-based broker and research company.
The USDA updates its monthly forecasts tomorrow, after canceling the October report during a government shutdown.
Rising demand may erase some of the surplus, as buyers rebuild U.S. inventories that fell to a four-year low of 141 million bushels on Sept. 1, USDA data show. Widening profit for U.S. and Chinese processors will keep supplies tight through August, Macquarie Bank Ltd. said in an Oct. 24 report.
Sales of U.S. soybeans for delivery in the 12 months ending Aug. 31, 2014, totaled 32.229 million tons through Oct. 24, 25 percent more than a year earlier, government data show. That included a 28 percent jump to China, the top user, at 20.1 million tons. The USDA inspected a record 164.2 million bushels of soybeans for export during the two weeks ended Oct. 31.
Demand is growing in China, the largest importer, because of an increased need for hog feed as domestic pork consumption surges, said Christopher Gadd, an analyst at Macquarie in London. Hog prices in Shandong province rose 27 percent since the start of May.
Soybeans accounted for about 63 percent of global oilseed consumption last year, with rapeseed, also known as canola, at 15 percent and palm oil at 8 percent, American Soybean Association data show. Processors crush 60-pound (27 kilogram) bushels of beans to produce 48 pounds of high-protein feed for livestock and pets, with almost half going to chickens and 26 percent to pigs, ASA data show. The leftovers produce oil used in salad dressing and cooking.
The rally in prices over the past five years helped to fuel expanded planting of soybeans in Brazil and the U.S., additional canola acreage in Canada and more palm in Indonesia. Global production of the seven major oilseeds will increase 4.7 percent to a record 480.6 million tons in the 2013-2014 season, says Oil World, the Hamburg-based research company.
Better-than-expected U.S. harvests and bigger crops in South America will reduce prices to $11.50 in six months and $10.50 in 12 months, Damien Courvalin, an analyst at Goldman in New York, wrote in an Oct. 30 report. Rabobank predicted on Oct. 25 that prices will slide through September 2014 to $12. Collin Hulse, a senior risk-management consultant at INTL FCStone Inc. in Kansas City, said prices may drop below $10 next year if global output keeps rising.
"We’re going to pay substantially less for feed ingredients, so we’ll get margin help on that side of the equation," William W. Lovette, the chief executive officer of Greeley, Colorado-based Pilgrim’s Pride, said on an earnings conference call Oct. 31. Shares of the company, a supplier to Wal-Mart Stores Inc., rose 146 percent in the past year.
Tyson Foods Inc., the largest U.S. meat producer, said Aug. 5 that bigger global crops will reduce the cost of feeding chickens, hogs and cattle in 2014. Tyson, based in Springdale, Arkansas, will report a 21 percent gain in profit to $990 million in the year ending Sept. 30, 2014, according to the mean of 11 analyst estimates compiled by Bloomberg.
Soybean stockpiles "will be the largest in history and more than adequate to meet increasing demand," Bill Gary, the president of Commodity Information Systems Inc. in Oklahoma City, Oklahoma. "South America will become a fierce competitor with the U.S. for world markets by early next year."
Brazil is already the largest exporter, shipping 41 million tons in the year ended Sept. 31, or about 5.2 million tons more than the U.S., USDA data show. Brazil will export 42.5 million tons this season, compared with 37.29 million for the U.S., the government agency said.
"The bean supplies are there, at least on paper, until the South American crops are harvested early next year," said Dan Cekander, the director of grain market analysts at Newedge USA LLC in Chicago. "If the USDA confirms a bigger U.S. soybean crop, that will ease concerns about tighter supplies from increasing demand."