It is becoming increasingly clear that world oilseed supplies are going to be tight in the coming year.
Every estimate coming from South America is forecasting crops smaller than last year in Brazil and Argentina. Brazil looks like it will produce 49-51 million tonnes instead of the 56 million tonnes earlier forecast by the United States Department of Agriculture. Argentina will produce about 32.5-33 million tonnes compared to 35 million forecast by USDA.
The influential vegetable oil market newsletter Oil World now estimates global soybean production at 187 million tonnes, down nine million tonnes from last year. That is 10 million tonnes shy of demand and will take a major bite out of stocks.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
The South American shortfall will guarantee that buyers will keep knocking on America’s door in the coming year. Even if American production recovers from last year’s drought-reduced 65.8 million tonnes to 77-80 million tonnes this year, there should be plenty of demand to support prices.
For Canadian farmers, that means canola prices should also be well supported.
There are other bullish factors to consider.
The western part of the U.S. Midwest is dry and regular rain will be needed to produce a good soybean crop there.
China rejected a shipload of Brazilian soybeans last week because there was a residue of fungicide used to combat Asian rust disease. Such mistakes favour U.S. exports, and traders are strongly influenced by American supply and demand.
But there also are bearish factors. Supply is only half the story.
Oilseed prices are where they are because of China’s voracious demand. In the past two years, the Asian giant has been the destination for one-third of global exports, importing more than 21 million tonnes of soybeans.
Can that continue?
Asian traders say the avian flu might have taken a bigger toll on poultry flocks than thought.
Chinese soy meal demand and prices are down at the moment and there is a surplus of imported soybeans.
Also, China’s demand for imported soybeans in the coming year might be affected by the government effort to curb the country’s runaway growth and inflation by limiting banks’ ability to lend money.
But such moves will likely only slow, not stop, China’s growth.
While there are some issues to monitor, buoyant oilseed markets are the likely norm for 2004-05.
