Soybeans Tight, but Prices under Recent Pressure

April 8, 2011 03:30 AM

South American soybean harvest and rumors of reduced Chinese orders have weighed on soybean markets in recent days.

Old-crop soybean supplies will be near the bottom of the bins at the end of August but old-crop corn looks even tighter to traders. As a result, prices have weakened for soybeans relative to corn. 

“We have the harvest going on in South America, and Brazil is undercutting our price,” so buyers are shifting to South American suppliers, says Lynn Smith, an analyst with Zaner Group in Illinois.


Chinese buyers may have bought more than they needed, knowing they could cancel if they saw a more favorable alternative in the South American crop. “If the South American crop is decent, they can cancel some of their prior obligations,” says Smith.


A month ago, USDA projected this season's ending domestic soybeans stocks at 140 million bushels, unchanged from the February estimate, and just 2 million higher than the carryover two years ago. Heading into the April World Agricultural Supply and Demand Estimates, trade estimates vary.


Smith says USDA may slightly raise carryover, but acknowledges that other analysts expect further tightening in old-crop stocks. A Dow Jones Newswires survey found an average prediction of 137 million bushels among 18 analysts.


Keith Gehling at AgriSource in Salem, Iowa, agrees that the old-crop soybean market has been struggling with rumored Chinese cancellations of U.S. soybean purchases. AgriSource projected that USDA's supply-demand estimates would reduce carryover to 130 million bushels.


Soybean meal demand has been somewhat sluggish. Gehling says increased supplies of distillers dried grains have helped curb the crush. Ethanol plants need to keep the distillers grains moving, so they're selling at prices that provide feeders a cheaper substitute for soybean meal.


Biodiesel demand for oil also may be lending pressure on meal prices. Last month, the United Soybean Board said an updated study showed that biodiesel production, which relies on soybean oil as its major feedstock, is supporting oil prices and reducing soybean meal costs.


Based on central Illinois prices, USDA on March 31 reported the value of meal from a bushel of soybeans at $7.84, up 30 percent from a year ago. However, the value of oil had risen by nearly two-thirds from a year ago to $6.59.

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