Expanding soybean production in the U.S. and Brazil, the biggest growers, is swelling global inventories to a record and eroding prices that Goldman Sachs Group Inc. predicts will tumble to the lowest since 2010.
Stockpiles will jump 16 percent to 72 million metric tons by September 2014, the biggest gain in four years, according to the average of 17 analyst estimates compiled by Bloomberg News. Goldman says futures traded on the Chicago Board of Trade will retreat 19 percent to $10.50 a bushel in 12 months.
Prices that averaged the most ever in 2012 spurred farmers to plant more and combined production from Brazil, the U.S., Argentina and Paraguay, the top exporters, is poised to reach a record. Growers also are reaping the biggest ever wheat and corn crops, driving down global food costs for five months, the longest streak since 2009, and boosting profit for buyers including Tyson Foods Inc., the largest U.S. meat processor.
"Domestically and globally, we will have big supplies this year," said Jeff Hainline, the president of Advance Trading Inc. in Bloomington, Illinois, who has been buying and selling grain since 1977. "Record prices for soybeans provided an incentive to grow more oilseeds. Unless the dollar collapses, or there is a major weather problem in South America this year, prices will slowly erode."
Futures dropped 14 percent to $12.98 since the end of May, the worst performer behind corn among the 24 commodities tracked by the Standard & Poor’s GSCI gauge, which gained 3.5 percent. The MSCI All-Country World Index of equities rose 3.2 percent and the Bloomberg U.S. Treasury Bond Index lost 1.6 percent. The Bloomberg Dollar Index, a measure against 10 major trading partners, weakened 2.4 percent.
Global production will jump 5.3 percent to a record 281.7 million tons this year as demand expands 4.3 percent to 268.9 million tons, the U.S. Department of Agriculture estimates. The agency postponed its monthly World Agricultural Supply and Demand Estimates report scheduled for Oct. 11 because of the partial government shutdown. U.S. output will jump 4.2 percent to 86 million tons, enough to meet demand for a year in China, the biggest consumer, the Bloomberg News survey showed.
Better-than-expected growing conditions for U.S. crops coupled with increases in South American production will drive prices lower, Damien Courvalin, an analyst at Goldman in New York wrote in a Sept. 30 report. The bank sees soybeans at $12.50 in three months and $11.50 in six months. Societe General SA is forecasting an average of $12.50 next year, or 11 percent less than its estimate for 2013. Prices averaged an all-time high of $14.50 in 2012 as the worst U.S. drought since the 1930s parched fields.
Record crops this season may not mean an immediate glut of supply because processors and importers will continue to deplete U.S. stockpiles before the start of South American harvests in January. Domestic inventories of 141 million bushels (3.8 million tons) on Sept. 1 were the smallest in four years, USDA data show.
Widening profit margins for processors will keep supplies tight as demand increases from makers of livestock feed and biofuel, Morgan Stanley analysts said in an Oct. 7 report. Sales of U.S. soybeans for delivery before Aug. 31 reached 25.697 million tons on Sept. 19, the best-ever start to a season.
"U.S. supplies are still going to be tight until the start of the South America harvest," said Diana Klemme, a vice president at Grain Service Corp., an adviser and broker in Atlanta. "We are going to have a problem getting enough soybeans to load all the ships headed for China and meet domestic crusher demand."
Hedge funds and other large speculators were still betting on higher prices, with a net-long holding of 135,252 futures and options on Sept. 24, data from the U.S. Commodity Futures Trading Commission show. The CFTC stopped issuing updates amid the government shutdown that started Oct. 1. Bullish wagers dropped 47 percent from a record 253,889 in May 2012 and prices tumbled 27 percent since reaching an all-time high of $17.89 in September 2012.
Growers in Iowa, the largest U.S. producing state, planted 3.845 million hectares (9.5 million acres) in 2013, up from 3.783 million a year earlier, USDA data show. The global harvested area will climb 2.8 percent to 111.76 million hectares.
Combined soybean production in Brazil, the U.S., Argentina and Paraguay will rise 6 percent to a record 236.2 million tons this year, capping a 53 percent gain in the past decade.
Brazil unseated the U.S. as the top soybean exporter for the first time last season and the country is poised to become the top grower this year, USDA data show. That will boost demand for potash and phosphate because sandy soils mean Brazilian farmers use more than three times as much of the fertilizer as U.S. growers, according to Plymouth, Minnesota-based Mosaic Co., North America’s second-largest fertilizer producer.
Tyson Foods said Aug. 5 that bigger global crops will reduce the cost of feeding its chickens, hogs and cattle in 2014. The Springdale, Arkansas-based company will report a 25 percent gain in profit to $1.02 billion in its fiscal year ending Sept. 30, according to the mean of 11 analyst estimates compiled by Bloomberg. Shares of Tyson advanced 48 percent to $28.70 this year and will reach $35.45 in 12 months, the average of 11 forecasts shows.
U.S. farmers are harvesting more bushels from fewer acres after Midwest rain boosted crops in August and September, while warm weather extended the growing season and helped plants put on more pods and fill them with bigger beans, said Seth Naeve, an agronomist at the University of Minnesota in St. Paul. Yields may rise to 41.6 bushels an acre, up from 39.8 bushels last year, according to the Bloomberg News survey of analysts.
"We are extremely happy with the yields this year," said Tim Eike, 46, who grows corn and soybeans on 23,000 acres that he farms with his wife’s relatives in Pawnee, Illinois. "This year will be one of our top five. There was enough soil moisture to help the plants get through the dry weather, and yields are better than expected."