Although global oilseed output should expand to record levels in 2008-09, historically high prices and market volatility are likely to persist throughout the marketing year, analysts say. Investor interest in physical commodities, ever rising production and transportation costs related to crude oil gains and expected strong demand should support the market, analysts say.

For 2008-09, global production of oilseeds is projected to expand to a record 419.3 million tonnes, up 8% from the current year, according to the U.S. Department of Agriculture (USDA). World soybean output is expected to account for 69% of the total gain in oilseed production, with the soybean crop forecast at a record 240.7 million tonnes, up 10% from 2007-08.

The global soybean production increase should exceed the demand increase, stabilizing supplies and resulting in a 2% rise in 2008-09 ending stocks, to 50.41 million tonnes versus 49.26 million estimated at the end of 2007-08. Still, the supply-to-use ratio will remain unchanged, at 21.1%.

The world’s two major soybean exporters, the United States (U.S.) and Brazil, each should see increased production. In the U.S., 2008-09 soybean output as of mid-June was projected up by more than 20% from the previous season, at 84.5 million tonnes, rebounding after the sharp cut in planted area in 2007-08.

Even so, adverse weather conditions through mid-June cast a pall on the U.S. soybean outlook. Planting had been delayed by excessive rain, and cool weather hampered emergence.

As of June 22, only 91% of the U.S. soybean crop was sown, compared with the five-year average of 96%. Emergence as of June 22 stood at 82% versus the five-year average of 93%.

Worse, historic flooding in the heart of the U.S. corn and soybean area washed out many fields. Although the exact extent of the damage remained to be determined as of late June, corn and soybean losses in the key state of Iowa alone were estimated at $3 billion.

Many farmers planned to replant, although widespread seed shortages posed challenges. But the late-planted soybeans will be much more vulnerable to hot, dry weather and early frosts, which could slash yields.

Damage to the major U.S. growing area sent soybean prices skyrocketing in June. Although "beans in the teens" have persisted all year, new-crop soybean futures surged to a staggering $15.64 a bushel ($575 a tonne), before easing back to below $15 as floodwaters receded.

In Brazil, current soybean prices are running at least 50% above where they were a year ago. But a huge jump in the costs of fertilizer and transportation could temper farmers’ planting intentions, unless adequate credit is available.

According to the USDA, the financial state of Brazilian farmers is better than several years ago, but they continue to carry considerable debt. In May, Brazil’s government announced a farm debt refinancing program, which should stretch the capital available for new purchases of farm inputs, although private financing still will be needed.

With adequate credit, the USDA predicts Brazil’s planted area will increase to near its 2004-05 peak. That increase along with average yields should result in forecast 2008-09 production of a record 64 million tonnes, compared with 61 million tonnes in 2007-08.

Meanwhile, soaring world demand should continue apace, with 2008-09 global soybean use projected at a record 239.44 million tonnes, up 3% from 2007-08. China, a main driver of this demand, should see its soybean use surpass 50 million tonnes for the first time.

Government subsidies to farmers should result in an 18% increase in 2008-09 Chinese soybean output, to 16 million tonnes. Nonetheless, China will need to import an estimated 35.5 million tonnes, a record high, to meet consumption.