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Power Hour: Record U.S. Soybean Crop Seen Extending Bear Market

June 11, 2013

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June 11 (Bloomberg) -- U.S. soybean farmers are planting a record crop that’s poised to double domestic reserves and expand a global surplus after last year’s drought drove prices to an all-time high.

Stockpiles at the end of August 2014 will have gained 116 percent to 7.29 million metric tons in 12 months, according to the average of 30 analyst estimates compiled by Bloomberg. U.S. production will jump 12 percent to 91.74 million tons, adding almost enough extra supply to feed India for a year. The U.S. government updates its estimates tomorrow. Jefferies Bache LLC expects November futures traded in Chicago to plunge 25 percent to $9.88 a bushel by Oct. 1, when harvesting peaks.

Soybeans, which rose to a record $17.89 during the 2012 drought in the U.S., are now in a bear market along with corn and wheat. The surge from as low as $4.985 in 2005 spurred farmers worldwide to add acreage, increasing supply and keeping the $1.14 trillion global food-import bill in check. Producers in Brazil and Argentina reaped the most soy ever in early 2013, capping a 54 percent expansion in combined output in a decade.

"We are going from a barren cupboard to abundant supplies in a very short time," said Dan Basse, the Chicago-based president of AgResource Co., which sells its agricultural research to clients in 81 countries. "Seven years of extremely high prices has spurred global production that will lead to several years of rising supplies and lower prices."

 

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While soybeans are now 26 percent below the record reached in September, the cost of supply for delivery before the harvest has been rising. The July contract rose 8.1 percent since the end of April as of yesterday, the most among the 24 commodities tracked by the Standard & Poor’s GSCI Index, which advanced 0.4 percent. The MSCI All-Country World Index of equities fell 0.9 percent, and a Bank of America Corp. index showed Treasuries lost 2.1 percent.

July futures traded at a $1.9275 premium to the November contract yesterday, from $1.6375 on May 1. The gap may widen to $3 next month on prospects for a glut after harvests in the Northern Hemisphere, Basse said. The spread was $1.9975 today.

Global soybean production will jump 6.1 percent to a record 285.5 million tons this year, while demand rises 4.4 percent to 270.18 million, according to the U.S. Department of Agriculture, which updates its forecasts at noon tomorrow in Washington.

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