Oilseeds

by Meyer Sosland
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As maize and wheat price gains took their turns making headlines in 2007, soybean markets often appeared forgotten in all the tumult. Soybean prices advanced, but fairly quietly, and their gains often lagged the spectacular increases in maize and then, wheat prices.

But in the final quarter of 2007, soybeans finally joined the other commodities in the limelight. With maize moving back up to approach the key $4.50 a bushel level ($177 a tonne) and wheat reaching an all-time high of $10 a bushel ($367 a tonne), soybean prices also rallied sharply and, in December, surpassed $400 a tonne, setting a 34-year high and generating their own headlines.

The commodity price gains have been sparked in part by intensifying inflationary expectations, particularly as crude oil prices neared $100 a barrel, the U.S. central bank cut interest rates to deal with a credit crisis and the U.S. dollar dropped sharply relative to other key currencies. And with the rise in oil prices, emphasis on using maize and oilseeds as alternative energy sources has prompted global concerns about food crop shortages, helping push crop prices higher.

Soybean fundamentals themselves also began to turn bullish. In December, the U.S. Department of Agriculture (USDA) restated that 2007-08 world soybean production, at 221.6 million tonnes, would be down 6% from 2006-07.

Meanwhile, projections of total use crept higher, with the December forecast at 235.2 million tonnes, up 4% from the previous season. The result was a marked drop in forecast 2007-08 ending stocks, both from the 2006-07 level and from earlier expectations; in December, the USDA estimated 2007-08 world ending supplies at 47.32 million tonnes, down 22.6% from the previous season and the smallest in four years.

The United States (U.S.) is expected to account for a substantial portion of the decline, as its soybean ending stocks are forecast at about 5 million tonnes, down 68% from the 2006-07 level of 15.6 million. U.S. soybean production dropped by 18.6% as growers shifted plantings to more competitively-priced maize, while U.S. consumption set a record high of 54.25 million tonnes.

Meanwhile, growing conditions in the two other major producing countries of Argentina and Brazil remained uncertain, as planting was delayed in both countries because of dryness. Although conditions as of early December pointed to 2008 harvests equal to or slightly larger than the previous season, concerns persisted because of a strong La Niña weather pattern that often causes crop problems.

On the demand side, a major factor is China, where vegetable oil use has exploded amid changing consumer preferences and rising incomes. At the same time, urbanization and falling water tables have led to a drop in oilseed production in the past few years, prompting higher domestic prices.

China’s food costs gained 18.2% in November alone, pushing inflation to the highest level in 11 years. The increases are threatening unrest in China, where a stampede at a supermarket sale of cooking oil killed three people in November.

To help keep prices in check, China’s government in mid-December announced the end of tax incentives on food grain and oilseed exports. China also has kept up the pace of its soybean imports, which currently are forecast at a record 34 million tonnes for 2007-08, up 18% from 2006-07.

The outlook for soybean prices into the 2008-09 season currently indicates continued strength, but much will depend on actual harvest numbers in South America, as well as planted area in the U.S. Analysts note U.S. soybean prices currently are competitive with maize and will have to remain so through May to remedy the narrowing gap between soybean supply and consumption.

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