The smallest U.S. soybean harvest in nine years will leave inventories in the world’s largest exporting nation at the lowest in four decades.
U.S. farmers will reap 13 percent less than a year earlier after the worst Midwest drought in 76 years, according to the average of 34 analyst estimates compiled by Bloomberg. Reserves will be the lowest since 1973 by March, estimates INTL FCStone Inc., which handled $75 billion of physical commodities in 2011. Futures will advance 18 percent to an all-time high of $20 a bushel in three months, Goldman Sachs Group Inc. predicts.
Crop prices surged to records this year as drought parched fields across the U.S., South America and Russia. The U.S. Department of Agriculture cut its forecasts the past two months and the Bloomberg survey indicates the agency will do so again tomorrow, leaving Brazil as the top soybean supplier for the first time. Feed costs are rising for meat producers including Tyson Foods Inc., the largest in the U.S., and three United Nations agencies said Sept. 4 that swift action is needed to avert a food crisis.
“The U.S. will simply run out of soybeans” for exports on March 1, said Doug Jackson, an FCStone vice president in West Des Moines, Iowa, who has been a grain-industry analyst since 1974. “The supply situation is unprecedented. The theoretical maximum South American shipping capacity may fall short, leaving world buyers wanting.”
Soybean futures have jumped 41 percent to $17.015 this year on the Chicago Board of Trade, and soybean meal, used in livestock feed, surged 65 percent to $515.90 per 2,000 pounds (0.91 metric ton). The Standard & Poor’s GSCI Agricultural Index of eight commodities advanced 16 percent as corn rose 20 percent and wheat 35 percent. The MSCI All-Country World Index of equities gained 10 percent, and a Bank of America Corp. index shows Treasuries returned 2 percent.
The USDA forecast Aug. 10 that global soybean production will increase 10 percent to 260.5 million tons in the year that begins Oct. 1, compared with demand of 256.9 million tons. The agency projected a 2.8 percent gain in stockpiles to 53.4 million tons. Prices advanced 4.5 percent since then and research companies including Hamburg-based Oil World reduced their predictions for supply as conditions worsened.
Only 32 percent of the U.S. soybean crop was deemed by the USDA to be in good or excellent condition as of Sept. 9, compared with a five-year average of 60 percent. Based on temperature and rainfall in June and July, the Midwest drought is the most severe since 1936, according to T-Storm Weather LLC, a Chicago-based forecaster.
Hedge funds and other speculators have increased bets on higher prices 10-fold this year, data from the U.S. Commodity Futures Trading Commission show.
The state of the U.S. crop is critical to global prices because it accounted for an average of 45 percent of all shipments over the past decade, USDA data show. That’s down from 63 percent in the previous 10 years as South American farmers expanded production.
Brazil will send 38.5 million tons overseas next marketing year, nine times more than in 1993, the USDA said last month. Its output will jump 23 percent to 82 million tons, exceeding the U.S. for the first time, according to Oil World. That compares with U.S. output of 72.4 million tons predicted in the Bloomberg survey.
The surge in prices is encouraging South American growers to cultivate a record crop that may curb the rally. Combined output in Brazil, Argentina, Paraguay, Bolivia and Uruguay may increase 31 percent to 151.6 million tons when harvesting begins in January, Oil World said in a report Aug. 28.
“South American farmers have plenty of land, soybeans cost less to plant than corn and the record profit potential means every available hectare will go into soybeans,” said Dale Durchholz, the Bloomington, Illinois-based senior analyst for AgriVisor LLC, an adviser to the industry. “The biggest risk to a sustained rally from record prices is that demand may slow more quickly than people expect.”
Futures have averaged $14.24 this year, heading for an annual record. Demand contracted 3.7 percent in the 2008-2009 season, the most in a quarter century, after prices jumped 74 percent in 2007 and economies tumbled into the worst recession since World War II. The economy in China, which accounts for 29 percent of consumption, has slowed for six quarters, and the 27-nation Europe Union, mired in a debt crisis, will consume the fewest soybeans since at least 1999, the USDA estimates.
Soybean consumption expanded at almost four times the pace of the world population since 2000, according to USDA and U.S. Census data. Rising incomes across developing nations increased demand for meat, spurring livestock producers to buy more feed as herds and flocks expanded. China will produce 690 million pigs this year, 36 percent more than at the turn of the century, and consume 36 percent more chicken per person, USDA data show.
Economic growth is also spurring more demand for vegetable oils used in everything from fried and baked foods to candy and breads. Global consumption of soybean oil will reach a record 42.98 million tons next marketing year, more than twice as much as two decades ago, according to the USDA, which updates its estimates at 8:30 a.m. in Washington tomorrow.
Meat consumption in China will continue to expand even as its economy slows, according to Cargill Inc., the biggest U.S. agricultural company. The “mega-trend” of rising demand applies across meat, milk and eggs, Christopher Langholz, the president of Cargill Animal Protein China, said in an interview in Singapore on Sept. 3. China’s gross domestic product rose 19-fold in the past two decades, the World Bank estimates.
U.S. sales of soybeans for delivery after Sept. 1 reached a record 18.08 million tons in the week ended Aug. 30, with China accounting for 65 percent of the cargoes, USDA data show. The U.S. may have to import 540,000 tons this year, the most ever, the agency estimates. That might increase further unless demand is choked off by higher prices, said Bill Gary, the president of Commodity Information Systems Inc. in Oklahoma City, which provides analysis and information to traders.
While the USDA has already cut its forecast for domestic consumption by 16 percent since June, FCStone expects stockpiles to drop by about 50 percent to less than 600 million bushels (16.3 million tons) by March 1 from a year earlier. The USDA estimated last month that the cost of soybeans at the farm would average a record $16 in the next 12 months, compared with $12.45 this season.
Sales of soybean meal for delivery after Oct. 1 rose 81 percent to 1.582 million tons on Aug. 30, compared with 699,684 a year earlier, USDA data show. U.S. processors in July crushed 137.4 million bushels of soybeans, the highest in five years, data from the National Oilseed Processors Association show.
Meal prices above $550 are “untenable” because they make feeding animals too expensive, Donald J. Smith, the president and chief executive officer of Tyson, told analysts on a conference call Aug. 6. The Springdale, Arkansas-based company will report net income of $600 million this year, down from $750 million in 2011, according to the mean of seven analyst estimates compiled by Bloomberg. Its shares have dropped 22 percent this year.
JBS SA, the world’s largest beef producer, will raise prices in response to higher feed costs, Chief Executive Officer Wesley Batista told analysts on a conference call Aug. 15. Shares of the Sao Paulo-based company, which has 120,000 employees worldwide, have declined 4.1 percent this year.
Feedlots lost about $316 a head in July fattening cattle for slaughter, said Ron Plain, a livestock economist at the University of Missouri. U.S. beef output will drop 3.9 percent to 24.575 billion pounds next year, the lowest since 2004, the USDA estimates. Retail prices will rise 5 percent, outpacing other food groups, according to the agency.
“Nobody has seen this kind of global shortage before, and yet there is little evidence that demand has slowed at current prices,” said Mark Schultz, the Minneapolis-based chief analyst at Northstar Commodity Investments Inc., which advises the grain, livestock and renewable fuel industries. “Soybean demand may not slow until we reach $20.”