Oilseeds

by World Grain Staff
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Gloom, doom and despair over the world’s economic prospects have continued to wreak havoc in commodity markets in early 2009, dragging down benchmark soybean prices to levels not seen since 2007. Although soybean prices rallied briefly in January partly on supply/ demand fundamentals, the soybean market succumbed in February to a renewed wave of fear about global financial stability and recession.

As of late February, soybean futures plunged by 47% from the alltime high of $16.37 per bushel ($600 a tonne) set in early July 2008. At the same time, U.S. cash soybean prices fell from July highs of about $490 a tonne to $316 a tonne, the lowest since October 2007.

According to analysts, the February slide occurred as investors repeated the recent pattern of fleeing to the safe havens of gold and U.S. Treasury offerings, shunning other asset classes. Fresh concern about the health of several major U.S. banks; how the new Obama administration, in concert with other world leaders, planned to rescue the financial system; and whether stimulus packages would boost global economic growth or merely add to growing levels of national debt.

The International Monetary Fund in February forecast 2009 world economic growth at just 0.5%. Other economists say the situation is the worst since the Great Depression of the 1930s, and they note "demand destruction" for goods and services around the world as people rein in consumption.

In the wake of this negative outlook, oilseeds demand prospects for 2008-09 are problematic. Total 2008-09 global crush for all oilseeds was projected in a February U.S. Department of Agriculture (USDA) report to slip from 2007-08, but only by 0.9%, and crush levels for rapeseed and peanuts actually were expected to increase slightly year over year.

The outlook for the soybean sector is different. The USDA report projected 2008-09 world soybean crush at 196.2 million tonnes, the second highest on record, but a number that would mark a slide of 5.46 million tonnes, or 2.7%, from the previous season’s 201.7 million tonnes.

If realized, the decline in terms of tonnes would be the largest ever year-on-year drop in crush since USDA records began in 1964-65. In terms of percentages, the 2008-09 decline would be the largest since 1988-89, when crush dropped by 3.5% from the previous season.

The drop in 1988-89 crush accompanied a plunge of 8% in global soybean production, which necessarily curbed available supplies. For the current season, world soybean output is forecast to increase by 3.3 million tonnes, or 1.5%.

That figure could rise if South American crops continue to receive needed rainfall. Argentina and to a lesser extent, Brazil, have suffered from serious drought, prompting cuts in their projected harvests of 5% and 6%, respectively, from 2007-08. But both countries since had received beneficial rains, which is expected to lift final production numbers.

In addition to crush, world trade in soybeans also is forecast to drop as demand shrinks. China was an active buyer in early 2009 amid concerns over the South American harvest, but its total imports are expected to fall by nearly 5% from 2007-08.

Overall, the USDA February report put 2008-09 soybean exports at 74.85 million tonnes, down 4.6 million, or 5.8%, from the record 79.5 million exported in 2007-08.

Economic woes aren’t the only factors influencing demand prospects. The plunge in crude oil prices — from nearly $150 a barrel to less than $40 — over the past six months or so has curbed enthusiasm for and profitability of alternative energy, such as oilseeds-based biodiesel.

And last year’s run-up in all grains and oilseeds prices drove up feed costs dramatically, forcing sharp cutbacks in animal numbers, thereby reducing feed demand this season. Plentiful supplies of other feedstocks, including wheat, also are tempering demand for oilseed meal.

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