25th Jul 2012, by Agrimoney
Soybean prices recovered early losses as Societe Generale joined the throng of commentators cautioning against ideas that the correction in futures seen in the past two sessions had legs, viewing the fall as a "buying opportunity".
The bank said it remained "bullish on soybeans" despite the selling on Monday and Tuesday - liquidation fuelled by macro-economic concerns, as fears revive over the eurozone debt crisis, but particularly over expectations of Midwest rains which could allow some crops to recover from drought damage.
"There is little that has changed fundamentally," SocGen analyst Christopher Narayanan said, rating soybeans as a better buy than coffee, corn, sugar or wheat.
"The break in prices represents a buying opportunity, with demand strong and declining forthcoming supply prospects."
Yield prospects
Many investors believe that US soybean yields, currently widely seen as having fallen below 40 bushels an acre, may yet recover thanks to the rains refreshing much of the drought-hit Midwest.
"Soybeans do have this reputation as a miracle crop, which can withstand dryness as long as it gets rain in the end," Jerry Gidel at broker Rice Dairy said
However, SocGen questioned the prospects for soybean recovery, with its research showing "the window closing rapidly for any chance of stabilising, much less reversing, yield losses".
"In our discussions with agronomists, given the extremely low soil moisture levels, soaking rains are needed for the balance of the next three-to-four weeks to stave off any further loss to soybean yields.
"Unfortunately, the current weather outlook, while providing hope to individual areas, makes it likely that the US national yield average will continue to decline."
'Demand increased dramatically'
Meanwhile, demand for the oilseed remained robust, with exports "strong", both for soybeans and soymeal, a high-protein animal feed ingredient which represents one of the two main products, with soyoil, derived from processing the oilseed.
"On the heels of a disappointing South American soybean harvest, demand for US soybeans and soymeal have increased dramatically," Mr Narayanan said,
"The US Department of Agriculture has since increased its [US soybean] export forecast three times, but the current pace of exports still points to additional upgrades to their revised estimates, further tightening the US soybean balance."
Indeed, strong demand was also evident in soybean basis levels which have remained firm despite this week's drop in futures, and rumours of Chinese buyers cancelling orders.
Soymeal exports also "remain seasonally strong".
'Critically low stocks'
The comments are the latest in a series this week supportive of soybean prices, from commentators including Macquarie, which on Tuesday rated soybean prices of $19-20 a bushel "a very real prospect in the near-term".
On Monday, Goldman Sachs lifted to $20 a bushel its forecast for soybean prices on the three-month horizon, citing the prospect of "critically low stocks".
Chicago's best-traded November soybean contract recovered from an early tumble to $15.36 a bushel, a decline of 2.1%, to stand at $16.01 ¾ bushel at 08:20 Chicago time (14:20 UK time).
Soybean prices recovered early losses as Societe Generale joined the throng of commentators cautioning against ideas that the correction in futures seen in the past two sessions had legs, viewing the fall as a "buying opportunity".
The bank said it remained "bullish on soybeans" despite the selling on Monday and Tuesday - liquidation fuelled by macro-economic concerns, as fears revive over the eurozone debt crisis, but particularly over expectations of Midwest rains which could allow some crops to recover from drought damage.
"There is little that has changed fundamentally," SocGen analyst Christopher Narayanan said, rating soybeans as a better buy than coffee, corn, sugar or wheat.
"The break in prices represents a buying opportunity, with demand strong and declining forthcoming supply prospects."
Yield prospects
Many investors believe that US soybean yields, currently widely seen as having fallen below 40 bushels an acre, may yet recover thanks to the rains refreshing much of the drought-hit Midwest.
"Soybeans do have this reputation as a miracle crop, which can withstand dryness as long as it gets rain in the end," Jerry Gidel at broker Rice Dairy said
However, SocGen questioned the prospects for soybean recovery, with its research showing "the window closing rapidly for any chance of stabilising, much less reversing, yield losses".
"In our discussions with agronomists, given the extremely low soil moisture levels, soaking rains are needed for the balance of the next three-to-four weeks to stave off any further loss to soybean yields.
"Unfortunately, the current weather outlook, while providing hope to individual areas, makes it likely that the US national yield average will continue to decline."
'Demand increased dramatically'
Meanwhile, demand for the oilseed remained robust, with exports "strong", both for soybeans and soymeal, a high-protein animal feed ingredient which represents one of the two main products, with soyoil, derived from processing the oilseed.
"On the heels of a disappointing South American soybean harvest, demand for US soybeans and soymeal have increased dramatically," Mr Narayanan said,
"The US Department of Agriculture has since increased its [US soybean] export forecast three times, but the current pace of exports still points to additional upgrades to their revised estimates, further tightening the US soybean balance."
Indeed, strong demand was also evident in soybean basis levels which have remained firm despite this week's drop in futures, and rumours of Chinese buyers cancelling orders.
Soymeal exports also "remain seasonally strong".
'Critically low stocks'
The comments are the latest in a series this week supportive of soybean prices, from commentators including Macquarie, which on Tuesday rated soybean prices of $19-20 a bushel "a very real prospect in the near-term".
On Monday, Goldman Sachs lifted to $20 a bushel its forecast for soybean prices on the three-month horizon, citing the prospect of "critically low stocks".
Chicago's best-traded November soybean contract recovered from an early tumble to $15.36 a bushel, a decline of 2.1%, to stand at $16.01 ¾ bushel at 08:20 Chicago time (14:20 UK time).
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