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Soybean prices under heavy pressure

Soybean prices for the 2001/02 marketing year will be “under intense pressure as supplies balloon,” and competition in the world market will be “fierce,” says Philip Sronce, direct of the Grains and Oilseeds Analysis Group of USDA's Farm Service Agency.

This, despite projected record demand for soybeans and record domestic use of soybean meal, he said at the annual Agricultural Outlook Conference in Washington.

Price is expected to be only in the $4.25 per bushel range, compared to $4.65 last year, and “producers' incomes will continue to be supported by the marketing assistance loan program.” Government outlays for that program could be nearly $4 billion.

“Domestic soybean supplies are projected to be a record 3.3 billion bushels,” he says. “That's up 7.5 percent from 2000/01 and the fifth consecutive year supplies have broken previous-year records.” The jump in supplies is the result of a 19 percent year-to-year increase in beginning stocks and a projected one million acre increase in planted acres.

Ending stocks are projected to hit 475 million bushels, the largest since 1985/86, and a substantial increase from 345 million bushels last year.

Yields for 2001/02, from an estimated 75.5 million acres, are projected at 39.5 bushels per acre, down from last year's 40 bushels. “Even using more normal weather assumptions for 2001, lower than normal germination rates because of reduced seed quality from last year's crop, point to increased downside yield risk.” Growers likely will attempt to offset this by increasing seeding rates and avoiding planting early into cold soils, Sronce says.

Although U.S. soybean production is expected to increase by more than 6 percent, only a slight increase is seen in the rest of the world. “Continued low prices and large U.S. and global stocks of oilseeds and oils will weigh on foreign production decisions, likely causing modest production declines in competing exporting countries.”

Domestic soybean use is projected to increase 3.4 percent to 1.8 billion bushels and crush is expected to hit a record 1.65 billion bushels, a 3.5 percent increase. Continuing low prices for meal and expansion of hog/poultry production are expected to increase meal demand, with prices pegged at $170 per ton, an increase of $2. Soybean oil demand is expected to grow modestly again, helped by low prices and a bit more industrial use.

Interest in non-food uses is growing, Sronce says, and more vegetable oil use may occur in animal rations. Some expansion of soybean oil for biodiesel use is also expected. A growth of only 3 percent in world soybean oil trade is forecast. “With huge supplies, projecting when global vegetable oil markets will begin to turn around is difficult. Prices for soybean oil could remain close to 30-year lows, at least through early 2001/02.”

U.S. soybean exports are projected at one billion bushels versus 960 million last year, getting a boost by the larger supply and China's increasing preference for importing soybeans rather than soybean products. Modest to strong growth is expected for sales of soybean meal to Asia, Mexico, and Latin American and Middle East countries, but “China and Mexico will contribute little, since they prefer to import soybeans and crush them locally.” European meal sales are expected to show little growth. Overall, exports of U.S. soybean meal are projected to increase four percent to 7.4 million tons.

Richard J. Feltes, vice president and director of commodity research at Refco Group Ltd, said USDA has tended to overestimate soybean projections at its annual February Outlook conferences.

It has over-estimated final new crop soybean stocks at its February conferences in each of the last six years, a has over-estimated yield in four of the last six years, and has over-estimated final U.S. soybean demand in each of the last three years.

“Most of the error in over-estimating final soybean stocks is due to over-estimation of production,” he says.

Feltes notes that there is “strong support” within the commercial and futures sector for lowering the soybean loan rate “to stem the increase in U.S. soybean area that is occurring despite low prices.”

It also recommends extending nine month loans to 14 months in order to alleviate late summer/fall price pressure resulting from a surge in cash selling driven by a convergence of loan maturities and harvest pressure.

Additional interest costs incurred by USDA for 14-month loans should be offset by limiting the loan deficiency payment on all commodities to nine months' storage (40 cents per bushel), Feltes says. “This plan would increase loan entries, ease harvest price pressure, reduce LDP payouts, and force the marketplace to pay more to pry grain under loan from farmer hands.

“Also, increasingly large LDP payouts have prompted producers to become even more indifferent to market signals and therefore less likely to employ proactive risk management strategies that enhance returns in low flat price markets with attractive carrying charges.”


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