Record U.S. Soybean Crop Spurs Storage Crunch as Prices Drop

July 11, 2014 04:00 AM
Record U.S. Soybean Crop Spurs Storage Crunch as Prices Drop

Grain shipper Keith Brandt in North Dakota is worried he’s about to run out of storage space just as rains in the U.S. improve the outlook for a soybean crop that’s already forecast to reach a record.

Rail delays of more than three months mean he’s still struggling to haul supplies from last season, while farmers across the nation have almost finished planting what the government estimates is an all-time high of 84.8 million acres. The supply boom sent prices to the longest slump in more than three decades and means that Brandt, the general manager of Plains Grain & Agronomy LLC in Enderlin, North Dakota, is facing the worst storage squeeze he’s seen in the 16 years he’s worked for the company.

"If we could have moved out last year’s crop, then we would not be facing this crunch," Brandt said yesterday in a telephone interview. "We are not going to have enough storage, even with additional farmer-built bins the last several years."

Futures in Chicago dropped for nine straight sessions through yesterday, the longest streak since 1981, and Goldman Sachs Group Inc. is predicting that prices will fall further. Climbing U.S. supplies will send global inventories to a record, according to a Bloomberg News survey. The U.S. Department of Agriculture will update its outlook for world crops today at noon in Washington.

Rising supplies will cut feed costs for producers of poultry, hogs and cattle, making it easier to increase meat production after wholesale-beef and pork prices reached records this month. Margins for Archer-Daniels-Midland Co. and Bunge Ltd. will probably improve with more bushels to process and export.


‘Bearish Supply’


"This is an important shift from tight supplies in the last five or six years to a bearish supply situation," Richard Feltes, a vice president at R.J. O’Brien & Associates in Chicago, said in a phone interview yesterday. "This is great news for livestock producers, and it will have a lot of negative repercussions for U.S. land values and equipment sales."

Soybean futures rose 0.1 percent to $10.9375 a bushel on the Chicago Board of Trade today, rebounding from the lowest level for the most active contract since 2010. Goldman expects prices to reach $10.50 in six months, the bank said in a June 23 report.

The USDA may raise its forecast for domestic production to 3.789 billion bushels from 3.635 billion estimated last month, according to the Bloomberg survey.


Rail Delays


Bigger crops may worsen rail delays. Burlington Northern Santa Fe, owned by Warren Buffett’s Berkshire Hathaway Inc., reported that it had 7,388 past-due graincars that were an average of 26.6 days late as of July 7, the USDA said yesterday. Canadian Pacific Railway Ltd., which Brandt uses to ship his corn, soybeans and wheat to export terminals and domestic processors, reported that its backlog was 10,000-12,000 grain cars for an average of 9.68-9.83 weeks late, the agency said.

The first three weeks of July are on track to be much cooler than normal across most of the U.S. soybean and corn growing region, according to Kyle Tapley, agricultural meteorologist for MDA Information Systems LLC in Gaithersburg, Maryland. The mild weather and ample rains mean yields for both crops are headed for records, he said in a report yesterday.

The USDA is expected by analysts to peg domestic corn production at an all-time high today, and say global reserves will rise to the highest since 2000, separate Bloomberg surveys showed. Soybean and corn prices reached records in 2012 as drought scorched fields in the Midwest. The oilseed has tumbled almost 40 percent from its peak, while the grain plunged more than 50 percent.

"The last six years of tighter supplies may have been the anomaly, and now we are returning to a period where global farmers outproduce the growth in demand," Feltes of R.J. O’Brien said.


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