Global soybean prices have rallied sharply over the past two months, as thin 2008-09 supplies and strong demand from China have more than offset continuing concerns about the world economic slowdown. But according to the U.S. Department of Agriculture (USDA) and some analysts, the recent price strength is unlikely to persist into the 2009-10 season.

After reaching record highs of nearly $500 a tonne in mid-2008, soybean prices plunged by more than 30% amid the global credit crisis and a sharp contraction in economic growth. But prices as of mid-May had advanced by 25% from the December lows to push above $400 a tonne for the first time since August 2008.

As 2009 progressed, crop prospects in Argentina, plagued with a historic drought, continued to deteriorate. Late-sown soybeans failed to receive even half of the usual March-April rainfall, the USDA said, leading the agency to cut its estimated 2008-09 Argentine production to 34 million tonnes, down 26% from the previous season.

Meanwhile, soybean imports from China in the period October 2008-March 2009 surged by 12% from the same period in the previous year. That buying lifted the USDA’s estimate of 2008-09 Chinese imports to 37.5 million tonnes, just below the record 37.8 million set in 2007-08.

China’s buying reflected worries about new-crop availabilities in South America as well as policies to support internal prices by allowing the state reserve to buy domestic output. That program prompted soybean processors to import cheaper foreign soybeans at a record pace.

The Chinese purchases included larger-than-expected sourcing from the United States, prompting the USDA to raise the 2008-09 U.S. export estimate to a record 33.75 million tonnes and leading to a drop in U.S. ending stocks estimates. In its May report, the USDA cut U.S. ending stocks to 3.53 million tonnes, representing a 7.2% stocks-to-use ratio, second lowest on record behind the 6.9% ratio at the end of 2003-04.

But the 2009-10 outlook portends a turnaround, based on USDA’s recent projections for the upcoming season. On the supply side, production in both Argentina and the U.S. is expected to jump to record or near-record levels, while the growth in import demand from China should be tempered by the country’s accumulating domestic reserve stocks.

The USDA projected 2009-10 Argentine soybean production at a record 51 million tonnes, based on record harvested area and a 40% jump in average yield with normal climatic conditions. The USDA noted that if the Argentine drought lingered into mid-June, winter wheat plantings could drop to a 40-year low, making more area available for soybeans.

In the U.S., cool, wet weather has greatly slowed planting progress for maize, which by May 10 was 48% planted versus the five-year average of 71%. In the Northern Plains, sowing of spring wheat also was lagging, at 35% versus the 78% average.

The grain planting delays could encourage a switch to soybeans, which would lift soybean area above the 30.4 million hectares estimated by the USDA in March. Given normal yields, the 2009-10 supply situation should be eased considerably, with the USDA projecting a near-record crop of 87 million tonnes and a 77% increase in ending stocks to 6.26 million tonnes.

Some analysts say U.S. soybean area could increase even more, not only because of grain-planting delays but because producers can lock in attractive returns at current price levels. With normal yields, one analyst said ending stocks could rise to 8.7 million tonnes.

The USDA said 2009-10 season-average prices could drop to as low as $310 a tonne, which would return prices to 2007 levels, while the high end of the USDA’s projected 2009-10 range is $384. That compares with the expected 2008-09 average of $362 and the mid-May price of around $410.

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