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Corn+Soybean Digest

Soybean Prices Heat Up With Help From China

Soybeans are the hot commodity right now, according to Darrel Good, University of Illinois (U of I) Extension marketing specialist. Robust Chinese export demand is the main factor behind a recent surge in prices, says Good.

“China is the big buyer in the global market, and as long as their demand holds up, so will soybean prices,” he explains. “For now, the Chinese demand for soybeans – both to process into oil for human consumption and into meal for livestock feed – remains very strong.”

Reduced soybean production in South America is another big reason for recent increases in U.S. soybean prices, adds Good. “Brazil’s soybean production is down 6.6%, Argentina’s is down 15.6% and Paraguay’s is down 42% from last year,” he says. “With a smaller South American crop, global demand is pushing more business to the U.S.”

The USDA’s most recent projection of 165 million bushels remaining from the 2008 soybean crop is a third reason for recent price hikes, notes Good. “We’re at about 5.5% of what we expect to use this year,” he says. “Any time you get around a 5% stocks-to-use ratio, that’s getting uncomfortably close to the minimum for some buyers.”

The 2003 soybean stocks-to-use ratio fell to 4.5%, “which is as low as we’ve ever gone,” adds Good. “That also explains what’s happened here this month,” he says. “The low stocks-to-use ratio was lower than expected and the markets began to wake up.”

The next USDA soybean supply and demand update will be on May 12, says Good. If that report shows continued strong export demand, soybean prices could ratchet up another notch, depending on the weather outlook for the growing season.

A team of Chinese buyers are due to arrive in the U.S. a couple weeks prior to the next USDA report, however, points out Jim Call, United Soybean Board marketing chair. “I don’t how much they plan to buy this year, but during last year’s tour, they committed to buying $4.5 billion worth of U.S. soybean products, and they honored their commitments,” says Call. “With reduced production in South America right now, and the strikes that are going on in Argentina, we probably look like a more reliable supplier in comparison. So, I’m hoping to again see strong commitments from Chinese buyers this year.”

After watching soybean prices stagger throughout the fall and early winter, Call says he’s pleasantly surprised to see the recent strong increase in prices. “I never thought I’d see $10+ soybean futures prices this soon in the year,” he says. “We’ll probably have some weather scares coming up that could boost prices even higher, but a lot will depend on continued export demand.”

The USB’s international marketing plan is essential to maintaining relationships with foreign buyers, and keeping export demand strong, emphasizes Call. “Every chance I get, I try to remind farmers here that every other row of soybeans that they plant has to be exported,” he says. “The U.S. exports 45-50% of our crop every year. So, these tours by foreign buyers are a big part of trying to make that happen.”

For more information, go online to USB and grain marketing.

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