World Grain - December 2006 - 16

grainmarketreview
World soybean production, ending stocks
(in 1,000 tonnes)

Production

Oilseeds
Soybean prices rally despite
record high production,
ending stocks
by Melissa Alexander

60,000
55,000
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000

7*
6-0
200 -06
5
200 -05
4
200 -04
3
200 3
2-0
200 -02
1
200 1
0-0
200 -00
9
199 9
8-9
199 -98
7
199 -97
6
199 -96
5
199 -95
4
199 -94
3
199 -93
2
199 -92
1
199 -91
0
199
*projected
Source: U.S. Department of Agriculture

Seasonal soybean price change, September to October
(in U.S. dollars per tonne)

25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35

6
200
5
200
4
200
3
200
2
200
1
200
0
200
9
199
8
199
7
199
6

199

Global oilseed production in 2006-07 is set to reach a record high of 392.5 million tonnes, fueled by a predicted bumper world soybean crop, according to a recent report from the
U.S. Department of Agriculture (USDA).
Total oilseed use for 2006-07 should stand at a record
327.5 million tonnes, with ending stocks forecast at 61.33 million tonnes, just 390,000 off the record high, the USDA said.
Led by record U.S. soybean production of 87.2 million tonnes,
global soybean output should climb to an all-time high of nearly
225 million tonnes. World soybean use, while also forecast to
reach a record high of 221.1 million tonnes, should lag output,
resulting in a 6% jump in year-to-year ending stocks to an alltime high of 55.2 million, the USDA projected.
Typically, the soybean market, when confronting the prospects of record output and ending stocks, comes under pressure, particularly during the harvest period in the U.S. This
seasonal price low historically is set from October to early
November unless a short U.S. crop is harvested.
This season, however, soybean prices have rallied from
September through early November, despite the bearish U.S.
and world supply outlook. In fact, 2006 has seen one of the
largest October price increases in history and the strongest
since 2003.
In September this season, the average of soybean prices received by U.S. farmers stood at about U.S.$192 a tonne. That
figure increased by U.S.$15, to U.S.$207 for the October average, and as of mid-November, prices had continued to rally to
U.S.$233, a 21% jump from the September price level.
By comparison, in 2003, the price increase from September
to October was U.S.$20, to U.S.$242, and prices rallied into
November to U.S.$259, an increase of 17% from the September price level. The 2003 rally stemmed from a second consecutive year of declines in U.S. soybean yields and a resulting
11% drop in 2003-04 production versus 2002-03 output.
Analysts attribute the current season's soybean price
anomaly to an extremely bullish environment in the maize
and wheat markets. Growing demand and declines in wheat
and maize production are leading to critically low global
feed supplies and are sharply pushing up prices for those
crops, the USDA noted.
The wheat and maize gains are pulling along soybean prices
in preparation for a strong competition among the three crops
for U.S. planted area, according to the USDA. Before soybean
prices began to follow the wheat and maize rallies, wheat futures prices were trading at a mere U.S.$22 a tonne discount
16

Ending stocks

250,000
230,000
210,000
190,000
170,000
150,000
130,000
110,000
90,000
70,000
50,000

Soybean prices received by U.S. farmers.
Source: U.S. Department of Agriculture

to soybeans. A more "normal" spread would be a minimum of
U.S.$55, premium soybeans.
That process of prices competing for plantings is effective
immediately for South American cropland and probably will
continue into next spring in the Northern Hemisphere, the
USDA said. Indeed, current price levels typically would encourage South American producers to grow more soybeans,
which could help free up more land for U.S. maize and wheat
sowing next year.
But some observers suspect the soybean price run-up may
be too late to effect a substantial change in Brazilian planting intentions for this season. Many farmers made planting
decisions before the price advances, and existing debt has restricted other farmers' ability to obtain more credit, regardless
of price levels.
The USDA's latest 2006-07 soybean production forecast
for Brazil is 56 million tonnes, up only 1 million from the
2005-06 season. Private analysts in Brazil have put the crop
in a range of 55 million to 56 million tonnes, although one
estimates production will not surpass 50 million because of El
WG
Nino-related issues and soybean rust problems.
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World Grain - December 2006

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