by BETTER FARMING STAFF
The September-long slide in soybean prices appears to be over.
After falling 20 per cent since reaching a three-year high of US$14.65 on the Chicago Board of Trade on Aug. 31, soybean prices are rising because of increasing demand and falling output. That output in the United States will fall by 7.3 per cent this year, leading the first decline in global output since 2009.
According to a Bloomberg report, Global financial services firm Morgan Stanley expects soybeans to average US$14.25 a bushel in the 12 months ending Aug. 31, the most ever and 21 per cent more than Tuesday’s Chicago closing price of US$11.77. On Wednesday the November contract price was at US$12.35.
Ahmed Chilmeran, industry analyst for the Grain Farmers of Ontario, says the trend upward could take soybeans to “the fourteens” although he thought $14.25 might be a little optimistic. He says the U.S. Department of Agriculture (USDA) is expected to announce Thursday a slight increase in earlier yield projections but, “the overall projection is going to be down in supply for this year and that’s the main driver for the increase in price.”
The drop in prices was due to concerns that slowing world growth would weaken demand for raw materials. However, demand for cooking oils hasn’t fallen during a recession in the past three decades, according to the USDA. As Chilmeran put it, “people need to eat.”
Global soybean consumption surged 47 per cent in the past decade, fueled by economic growth in China, India and Brazil that boosted incomes and demand for vegetable oil used in fried and baked foods, candy and breads. People also are eating more meat, increasing the need for livestock feed.
Over the past five global recessions, demand for soybeans, corn and wheat has grown by an average two per cent a year, Morgan Stanley analysts led by New York-based Hussein Allidina wrote in a report Sept. 26. They reiterated their estimate for an average price of $14.25 a bushel in a report Oct. 9.
Global soybean consumption will increase 3.8 per cent to 262.24 million metric tons in the year ending Sept. 30, 2012, the highest ever, USDA data shows. Demand in China, the world’s biggest user and importer, will rise 8.6 per cent to 71.6 million tons. Global reserves of cooking oils will shrink to 6.8 per cent of consumption, a record low.
Soybean production is declining in part because U.S. farmers are choosing to plant more corn. A farmer in central Illinois, the largest U.S. grower after Iowa, can earn $151 more per acre on corn than on soybeans based on estimated costs and yields calculated by the University of Illinois and the Chicago price of crops during the harvest.
Soybean output in Brazil, the world’s second-largest grower and exporter, will drop next year for the first time since 2009 because of lower yields.
According to Statistics Canada, soybean production in Canada is expected to decrease to 3.9 million tonnes this year from 4.3 million tonnes in 2010. Most of this decline comes from Ontario where, despite harvested acres being unchanged from 2010, yield is expected to drop by 5.5 bushels per acre to 40.5 bushels per acre. Manitoba farmers also expect a lower average yield – 25.7 bushels per acre in 2011 compared to 31.4 bushels per acre in 2010. BF