U.S. Soybean Reserves Trail Forecasts as Drought Damaged Crops

U.S. soybean inventories on Dec. 1 fell to the lowest since 2003 and were smaller than analysts expected after the country’s worst drought since the 1930s damaged crops, the government said.

Stockpiles totaled 1.966 billion bushels (53.5 million metric tons), compared with 1.981 billion, the average expectation of 26 analysts surveyed by Bloomberg News. Inventories were down 17 percent from 2.37 billion a year earlier, the U.S. Department of Agriculture said today in a report.

“The smaller inventory forecast reinforces that extremely tight U.S. supply situation before next year’s harvest,” said Dale Durchholz, the senior market analyst for AgriVisor LLC in Bloomington, Illinois. “We are going to get a price rally to restrict consumption. U.S. processors will be scrapping the bottom on the grain bins to get supplies this summer.”

The oilseed reached a record $17.89 a bushel on Sept. 4 as the dry conditions threatened production. Futures have fallen 23 percent since then, with the March contract declining 0.7 percent to $13.70 at 7:46 a.m. on the Chicago Board of Trade. Soybean meal for March delivery dropped 1.1 percent to $401 for 2,000 pounds. The high-protein animal feed gained 26 percent in the 12 months through yesterday.

Reduced Margins

Reduced soybean supplies have cut margins for meat producers Tyson Foods Inc. (TSN) and Smithfield Foods Inc. (SFD), which buy soy-based animal feed. Oilseed processors such as Bunge Ltd. (BG) and Archer-Daniels-Midland Co. (ADM) may benefit from a global shortage of the livestock ration. The central Illinois crush spread -- the difference between the cost of a bushel of soybeans and the value of the meal and oil it can produce -- is more than double the average of the past two years.

The 2012 U.S. soybean crop totaled 3.015 billion bushels, up 1.5 percent from a December estimate, the USDA said today in an annual production report. Analysts were expecting 2.993 billion bushels. About 3.094 billion bushels were harvested in the previous year.

U.S. Crushings

About 1.605 billion bushels of soybeans will be processed into animal feed and cooking oil, according to the report, up from 1.57 billion projected in December and 1.703 billion in the previous year.

U.S. inventories on Aug. 31, before the next harvest, will total 135 million bushels, in line with analyst estimates, compared with 130 million bushels forecast in December, the USDA said. Stockpiles were 169 million bushels a year earlier.

Cash prices for the marketing year that began Sept. 1 will average a record $14.25 a bushel, the USDA said, compared with $14.55 estimated a month ago and $12.50 last year.

World production will total 269.41 million tons, more than the 267.72 million forecast in December as Brazil is expected to surpass the U.S. as the world’s biggest producer with 82.50 million tons harvested, up 1.9 percent from last month’s estimate, the department said. In the previous year, world output was 238.73 million tons.

Global inventories on Sept. 30 will be 59.46 million tons, down from 59.93 million forecast in December, the USDA said. A year earlier, supplies totaled a 55.1 million.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth in Chicago at sstroth@bloomberg.net.

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