Massive demand from China is keeping oilseeds markets buoyant.

At this point in the year, all eyes are on the soybean crops in the United States and South America. Europe’s rapeseed crop fell to 19.9 million tonnes from 21.5 million the previous year, Russian oilseed production is suffering from drought and Australia’s crop is also plagued by weather problems.

Despite these problems, the International Grains Council’s (IGC) 2010-11 production forecast of 260 million tonnes beats last year’s record.

The U.S. crop is slated to be a record at 94.8 million tonnes, compared with 91.4 million the year before. “However, the global outlook is still tentative as much depends on outcomes in South America, where harvesting will not commence until early 2011,” the IGC said. “Argentina, Brazil and Paraguay brought in record crops earlier this year, and while there is expected to be heightened competition from other crops, particularly maize, very good outturns are still likely if growing conditions are generally favorable.”

The IGC expects China to import 53.5 million tonnes of soybeans in 2010-11, up from 49 million in 2009-10.
More bearish factors are weaker crude oil and a touch of profit taking in markets around the world as traders take a breather and think about where the market might be going next. A USDA report which put stocks higher than expected also caused market players to stop and think.

Even so, according to the CME Group’s own commentary, November soybeans had, at the time of writing, just posted a two-year high. On the same day, the dollar posted a low, providing an added bullish element. The USDA’s Grain Stocks report showed a 9% rise in U.S. soybean stocks, although the more immediate market response was to a 2% rise in maize (corn) stocks.

As of Oct. 7, cumulative soybean sales stood at 56.4% of the USDA forecast for 2010-11 versus a five-year average of 38.6%, the commentary said.

A look at the USDA’s releases for the first half of October shows how soybean sales to China are going. On Oct. 15, exporters reported 240,000 tonnes of soybeans exported to China, 280,000 tonnes on Oct. 14, 297,500 tonnes on Oct. 13, 225,000 tonnes on Oct. 5 and 110,497 on Oct. 1. Deals under 100,000 tonnes don’t have to be reported.

One country which has problems is Australia. Water logging in Victoria and drought in Western Australia has triggered a cut in the Australian Oilseeds Federation’s crop estimate by 185,000 tonnes to 2.065 million tonnes, still up from 1.897 million last year. The reason the crop total is up is a rise in planted area, to 1.61 million hectares from 1.39 million, and a sharp increase in yields in New South Wales, where the 2010-11 crop is put at 605,000 tonnes, compared with 261,000 last year on an area which has risen to 320,000 hectares from 227,000. Recent dry weather in NSW has been welcome, the federation said in its commentary on the new estimates. Dry weather in Victoria has been too late to save crops in the high rainfall zone of the state’s western district.

According to the U.K.’s Homegrown Cereals Authority, Argentina has started planting soybeans, with 1.3% of the area completed by Oct. 7. Damp soil in Argentina is reported to be aiding planting.

According to the USDA attaché in Brazil, where planting has also begun, the planted area there will be a record 24 million hectares. The USDA maintains its forecast of a record 67.5-million-tonne Brazilian crop.

“The La Nina weather phenomenon slightly delayed planting and is expected to reduce national average yields due to irregular precipitation patterns,” it said in a recent report. “Favorable futures prices have spurred early committed sales of the 2010-11 soybean crop to 18%, ahead of historical norms.”