Soybean farmers will produce more than the world needs for the fourth consecutive year, compounding a record surplus that has more than doubled since 2009.
U.S. 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 will offer better returns even with prices down 34 percent in the past year.
World inventories may rise 5.8 percent to 95 million metric tons before the 2016 harvest, a Bloomberg survey of analysts showed. Less than three years after a U.S. 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 Co.
“It’s not difficult to imagine world inventories topping 100 million tons,” said Steve Nicholson, a vice president of food and agriculture research at Rabo AgriFinance Inc. in St. Louis.
The U.S. Department of Agriculture will issue its first forecasts of global production and demand on Tuesday, as well as update domestic predictions from February. According to the Bloomberg survey, traders expect U.S. inventories before the 2016 harvest will rise to a nine-year high of 446 million bushels, from an estimated 362 million on hand Aug. 31.
Soybean prices have tumbled, touching a four-year low Oct. 1, after U.S. farmers harvested a record crop of 3.97 billion bushels (108 million tons) last year, 18 percent more than in 2013. Futures dropped 33 percent in the past year and traded at $9.7950 a bushel on the Chicago Board of Trade on Monday.
With more supply on the way, “we are on the cusp of a break in prices” toward $8 by harvest, Nicholson said.
Not everyone is bearish, partly because global demand has been a record for seven straight years. U.S. export sales of soybeans for delivery by Sept. 1 jumped 11 percent from the same period a year earlier, while sales of soybean meal rose 13 percent, both records for the date, USDA data show.
Improved demand from China has helped soybeans outperform corn and wheat this year, partly because U.S. growers were reluctant sellers, said Bruce Weber, the director of soybean products and exports at Inver Grove Heights, Minnesota-based CHS Inc., the largest farmer-owned cooperative.
Farmer-held inventories on March 1 were 60 percent higher than a year earlier at 609 million bushels, the most since 2010, the USDA said March 31.
Futures for May delivery fetched an 8.75-cent premium to the July contract on May 5, the highest since Chicago trading began. A rising premium reflects tight farmer holding, said Kari Vander Wal, the procurement manager for South Dakota Soybean Processors LLC in Volga.
“Demand has been good, and it has taken longer to fill the pipeline than expected,” CHS’s Weber said. “Supplies don’t count until farmers sell.”
There are signs that buyers are seeking cheaper alternatives, especially from South America. U.S. sales for delivery after Sept. 1 totaled 4.324 million tons on April 30, down 44 percent from a year earlier and the smallest for the date since 2010, USDA data show. Advance sales commitments for soybean meal delivered after Oct. 1 are 43 percent lower.
Total production in South America is estimated at a record 166.4 million tons, up 7.4 percent from last year and 44 percent larger than in the 2011-2012 season, the USDA said last month. The department may boost that estimate to as much as 170 million tons after late-season rain boosted yields in Brazil and Argentina, the biggest growers after the U.S., said Pedro Dejneka, the managing partner for AGR Brasil, a unit of Chicago- based AgResource Co.
Further limiting the appeal of U.S. supplies has been a rally in the dollar, which makes soybeans more expensive for buyers with other currencies. Since Sept. 1, the dollar rose 25 percent against the Brazilian real and 6.2 percent versus the Argentina peso.
“Disposing of U.S. supplies will be more difficult with increased competition from South America,” Dejneka said May 7. “Supply growth is exceeding demand, and the dollar strength makes U.S. soybeans less competitive. We may see prices near $8 at harvest with good U.S. growing weather this year.”