7th Aug 2012, by Agrimoney
Soybean prices have only "limited" potential to fall despite the stabilisation of the US crop, thanks to the "staggering" slump in stocks in rival exporting countries, Oil World said.
A drop in soybean prices particularly evident in Chicago's August lot - which on Tuesday closed at a one-month low more than $1.70 a bushel below the July 20 record high for a spot contract - looks unlikely to set a trend, thanks to the "severe demand rationing" required of curtailed soybean supplies.
Soybean stocks in Argentina, Brazil, Paraguay and Uruguay, South America's top four exporters, had as of the start of this month "plummeted to only an estimated 45.4m tonnes, a staggering 22.5m tonnes, or one-third, below a year earlier", Oil World said.
South American soybeans, harvested early this year, were, like the US crops currently in the ground, affected by extreme dryness.
While data overnight showed the condition of US soybeans stabilised last week, in terms of the proportion rated in "good" or "excellent" health, the crop looked unable to fill the void in world demand.
'Severe tightness'
"[The] prospective sharp decline in South American exports is boosting foreign demand for US origin to levels the US is unlikely to satisfy, owing to the recent significant soybean crop deterioration," Oil World said.
"Severe demand rationing will be required, considering the sharply-reduced South American soybean stocks currently available and the prospective unusually-small US soybean stocks of, or below, 4.3m tonnes as of end-August 2012."
The "severe tightness" in supplies meant that "downward potential is limited for the contracts up to December 2012/January 2013", ahead of the onset of supplies from the next South American harvest.
While there was a threat to soybean prices from a sell-down by funds, which have a near-record net long position in soybean futures and options, damage from such liquidation would prove limited.
'No signs of rationing'
The comments, which tally with an assessment on Tuesday by Societe Generale that soybeans are the "tightest commodity within the grain and oilseeds sector", came as Dr Cordonnier flagged the unease in South America itself over tightening supplies.
"Brazil is expected to essentially run out of soybeans within two months and that has many processors and livestock producers extremely worried," he said, noting a request by the governor of Mato Grosso do Sul for state help securing "emergency" imports of 300,000 tonnes of the oilseed.
"His request may be difficult if not impossible to achieve because all the other major producing countries in South America are also running out of soybeans."
'No signs of rationing'
Meanwhile, demand from Asian importers China, the top buyer, Japan, South Korea and Thailand raced 21% higher to 17.4m tonnes in the April-to-June quarter.
"Import statistics for June do not yet reveal any signs of rationing," Oil World said.
Indeed, Chinese soybean crush margins have recovered from levels around $250 a tonne in the red in the early summer to the same in the black, according to Morgan Stanley.
US crush margins have doubled so far in 2012 to some $1.90 per bushel of soybeans.
Processing profitability being supported by the price of soymeal, a high-protein livestock feed source, for which demand is only being whetted by waning supplies of distillers' grains, a high-protein byproduct from corn ethanol manufacture.
"Poor production in South America and stronger crush margins, should support near-term demand for US soybeans and soymeal," according to Morgan Stanley, which said it was "constructive" on the oilseed's price prospects.
Soybean prices have only "limited" potential to fall despite the stabilisation of the US crop, thanks to the "staggering" slump in stocks in rival exporting countries, Oil World said.
A drop in soybean prices particularly evident in Chicago's August lot - which on Tuesday closed at a one-month low more than $1.70 a bushel below the July 20 record high for a spot contract - looks unlikely to set a trend, thanks to the "severe demand rationing" required of curtailed soybean supplies.
Soybean stocks in Argentina, Brazil, Paraguay and Uruguay, South America's top four exporters, had as of the start of this month "plummeted to only an estimated 45.4m tonnes, a staggering 22.5m tonnes, or one-third, below a year earlier", Oil World said.
South American soybeans, harvested early this year, were, like the US crops currently in the ground, affected by extreme dryness.
While data overnight showed the condition of US soybeans stabilised last week, in terms of the proportion rated in "good" or "excellent" health, the crop looked unable to fill the void in world demand.
'Severe tightness'
"[The] prospective sharp decline in South American exports is boosting foreign demand for US origin to levels the US is unlikely to satisfy, owing to the recent significant soybean crop deterioration," Oil World said.
"Severe demand rationing will be required, considering the sharply-reduced South American soybean stocks currently available and the prospective unusually-small US soybean stocks of, or below, 4.3m tonnes as of end-August 2012."
The "severe tightness" in supplies meant that "downward potential is limited for the contracts up to December 2012/January 2013", ahead of the onset of supplies from the next South American harvest.
While there was a threat to soybean prices from a sell-down by funds, which have a near-record net long position in soybean futures and options, damage from such liquidation would prove limited.
'No signs of rationing'
The comments, which tally with an assessment on Tuesday by Societe Generale that soybeans are the "tightest commodity within the grain and oilseeds sector", came as Dr Cordonnier flagged the unease in South America itself over tightening supplies.
"Brazil is expected to essentially run out of soybeans within two months and that has many processors and livestock producers extremely worried," he said, noting a request by the governor of Mato Grosso do Sul for state help securing "emergency" imports of 300,000 tonnes of the oilseed.
"His request may be difficult if not impossible to achieve because all the other major producing countries in South America are also running out of soybeans."
'No signs of rationing'
Meanwhile, demand from Asian importers China, the top buyer, Japan, South Korea and Thailand raced 21% higher to 17.4m tonnes in the April-to-June quarter.
"Import statistics for June do not yet reveal any signs of rationing," Oil World said.
Indeed, Chinese soybean crush margins have recovered from levels around $250 a tonne in the red in the early summer to the same in the black, according to Morgan Stanley.
US crush margins have doubled so far in 2012 to some $1.90 per bushel of soybeans.
Processing profitability being supported by the price of soymeal, a high-protein livestock feed source, for which demand is only being whetted by waning supplies of distillers' grains, a high-protein byproduct from corn ethanol manufacture.
"Poor production in South America and stronger crush margins, should support near-term demand for US soybeans and soymeal," according to Morgan Stanley, which said it was "constructive" on the oilseed's price prospects.
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