GRAIN MARKET REVIEW
When fear grips a market, fundamentals get pushed aside. And the global financial crisis that intensified in October raised fear in most markets to levels not seen in decades.
As multinational banks failed, credit flows slowed to a trickle and central bankers around the globe took unprecedented emergency corrective measures, fear turned to panic. Investment goals centered on capital preservation, regardless of rate of return.
But even as the central banks’ actions appeared to alleviate some of the panic, markets have continued under pressure by the increasing possibility of a global recession. That prospect has weighed heavily on commodities, and oilseeds prices have taken a huge hit in this period.
As a result of the turmoil, "beans in the teens" are now a fading memory. From all-time highs of about $16.35 ($600 a tonne) reached in early July, November Chicago Board of Trade soybean futures as of late October had plunged by 48% to $8.59 ($315 a tonne).
The declines ended the near continuous two-year rally in soybean and other commodity prices. Whether that reversal signals a trend change or a temporary reaction to overwhelmingly bearish macroeconomic forces remains unclear.
Although soybean futures have taken direction from currency, equity and credit markets during the crisis, the soybean market will focus more on its fundamentals when the global financial situation becomes more stable, most analysts say. Unfortunately, uncertainties persist about supply and demand prospects, both of which may be influenced by the outlook for the global economy.
Some of the soybean market’s steep declines came from an improved supply situation. In an October report, the U.S. Department of Agriculture (USDA) noted that U.S. area planted to soybeans for 2008-09 reached a record high of 30.8 million hectares based on producers’ reaction to high prices.
The USDA cut back its yield projection because of late plantings, but the larger area should result in a 2008-09 U.S. crop of more than 81 million tonnes, about 2% higher than previous estimates and up 11% from 2007-08. Even so, U.S. ending stocks should remain historically tight, portending a potential rally once financial markets stabilize, analysts say.
Globally, harvest increases projected in Argentina, Brazil and China should allow for a build-up of supplies, the USDA said. Indeed, world ending stocks are forecast to jump by 2.5 million tonnes to 55.2 million, the second-highest level ever.
Argentine officials have estimated soybean plantings at a record 17.8 million to 18.2 million hectares, up from last season’s previous record of 16.9 million, although the price plunge and dry weather woes could cut into that number. The USDA projected Argentine 2008-09 soybean production at a record 50.5 million tonnes, up from the previous record of 46.2 million tonnes last season.
China’s 2008-09 production is forecast at a 16.5 million tonnes, up 3 million from the previous season. The production increase is based primarily on planted area expansion and yield recovery in a key production province, the USDA said.
The USDA projected a record crop of 62.5 million tonnes in Brazil, up from 61 million in 2007-08. By the end of October, however, some analysts questioned whether that forecast would be reached, based on tight credit conditions that could prevent loans needed for seed and high-priced fertilizer.
More uncertainty surrounds the demand side. The latest USDA report projected global soybean consumption at a record 235.2 million tonnes, but analysts caution it is unclear how much end users ultimately will buy if a global recession moves forward.
Even without a full-blown recession, many economists think economic growth is certain to slow considerably, which would shrink overall oilseeds demand. In addition, ample rapeseed, sunflowerseed and canola supplies will offer opportunities for substitution, keeping pressure on prices throughout the oilseeds complex.
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