Soybean prices that for years were propped up by strong global oilseed demand are now deriving strength from another commodity.
“The meal market is just on fire,” said Pete Meyer, agricultural commodities analyst with PIRA Energy Group.
High corn prices and prospects of a short wheat crop in Russia and other Black Sea countries is creating huge demand for the feed ingredient and the soybeans from which it is made.
“The meal component of beans is driving this thing nuts. There are guys out there that just can’t get enough meal,” Meyer said.
That makes him optimistic that soybean prices could move higher than $15 per bushel, lending continued strength to canola and other oilseeds.
However, his optimism is dampened when he looks at the spread between soy oil and soy meal prices.
“There just isn’t the demand out there for the oil as much as there is for the feed content of a crushed bean,” he said.
“It doesn’t seem like the consumer demand for vegetable oil is there like it was two years ago.”
He can’t figure out what’s behind the slumping demand for soy oil, other than the surging popularity of corn oil.
Meyer said the chief executive officer of Smithfield Foods recently told him that feeding distillers grain to livestock is a challenge.
That has prompted corn ethanol manufacturers to invest in technology that squeezes oil out of the DDGs, which has become an extremely profitable venture.
“Corn oil is making the rounds here pretty hard in the U.S. and you’re going to see more and more of that,” said Meyer.
Some ethanol plants are making a 300 percent return on their investment in one year.
“These guys are going to be all over it,” he said.
Meyer said soybean supplies are going to be tight until the next South American harvest next spring.
“The crop in Brazil and Argentina is definitely smaller than what people are saying and they’re definitely going to run out,” he said.
Drew Burke, chief financial officer of Bunge, confirmed that during a presentation he gave to investors attending BMO Capital Markets’ 2012 Farm to Market Conference.
He believes Brazil only has enough product to crush into oil and export as seed until August, while it normally would supply markets until well into the U.S. harvest.
“That means the U.S. is going to have to pick up a big part of the world demand starting in the October period through March.”
The United States will then sell out of product toward the end of March, before the South American harvest in April-May.
Supply is going to be tight, which is why the world needs big soybean crops from Brazil and Argentina in 2012-13. Burke is confident that will happen.
The U.S. Department of Agriculture is forecasting 55 million tonnes of production in Argentina and another 78 million tonnes in Brazil for a total of 133 million tonnes, 24 percent higher than the estimate for the 2011-12 crop.
Meyer has spoken to Brazilian farmers who intend to plant soybeans from lot line to lot line this fall.
“There is no question that there’s going to be big beans,” he said.