When the United States Department of Agriculture announced last week that the U.S. soybean crop was far below analysts’ lowest expectations, prices surged by 27 cents US per bushel.
That is a good rally, but nowhere as good as it would have been before farmers from South America started raining on the parade.
“If you had faced a (small crop) situation like we’ve seen in the States in the last couple of years and you had South America back where they were producing five or 10 years ago, we would have had huge rallies,” said Benson Quinn GMS commodity trader David Reimann.
Read Also
European wheat production makes big recovery
EU crop prospects are vastly improved, which could mean fewer canola and durum imports from Canada.
“There’s no question Brazil has capped the gain potential for the U.S. crop.”
The power of South American production to undermine world soybean prices is evident in analysts’ predictions that Latin American farmers will be able to easily expand their acres to fill in the lack of American soybeans.
“They have all sorts of land that can still be brought into production,” said Nolita Clyde, editor of Statcom Ltd.’s canola industry newsletter.
“This isn’t going away anytime soon.”
Oil World magazine is forecasting that Brazil’s soybean crop will rise by about nine million tonnes, and its exports will rise by four million tonnes.
Argentina’s soybean crop may increase by about five million tonnes and its exports by three million.
Prairie canola growers benefited from the soybean rally, but since midsummer they have seen their crop’s premium to soybeans drop. That should have been expected, Reimann said. Soybeans are now looking scarce, while this year’s bigger canola crop has eased buyers’ worries.
“We’re getting down to a little more realistic level,” he said.
New South American soybean supplies won’t be on the world market for several months, so canola growers should benefit from the short soybean situation over the winter, Reimann said.
Canola is part of the vegetable oil complex, which is dominated by soybeans. Recently, analysts have said that canola’s only chance of getting higher prices over the winter would come from a price rise in soybean and overall vegetable oils.
Because of the historically high premium canola was earning compared to soybeans, canola prices themselves couldn’t rise easily by themselves this winter, said Errol Anderson of Pro Market Communications.
But they can be dragged up by soybean rallies.
Reimann said North American farmers may be cursing South American farmers for spoiling the upside of vegetable oil prices, but they should also be thanking Chinese consumers.
Even though North and South America have produced a number of record crops in recent years, world stocks keep shrinking because demand is growing faster than production.
U.S. soybean stocks may decline about 130,000 tonnes to 3.68 million tonnes at the end of 2003-04. The USDA estimates the world carryover will fall to 34.77 million tonnes at the end of the 2003-04 crop year from 35.26 million.
“Those are very, very tight supplies,” said Reimann.
“We’re still consuming more oilseeds than we’re producing, even with those new records. We need those big supplies every year now.”
Unfortunately for prices, South American farmers appear to be able to fill most if not all of the gap. Reimann said South America used to be seen as a patch that could barely cover a shortfall in U.S. production.
“Now you see South America in the market 365 days a year,” said Reimann.
“It’s not just a patch. They’re a real competitor.”
