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Soybean ending stocks dwindle

Agriculture.com Staff 07/17/2006 @ 10:11pm

USDA, in its July Supply/Demand report, estimated the U.S. 2006-2007 soybean carryout at 560 million acres. Last month, USDA's 2006-2007 carryout estimate was 655 million bushels.

Even though the number was within 10 million bushels of trade estimates, the market recognized it as friendly.

Ray Grabanski, President and the Principal Owner of Progressive Ag, wrote in his Agriculture Online weekly column that soybean price projections were sharply higher due to the much lower U.S. and world endings stocks numbers.

USDA, in its report estimated world soybean ending stocks 4.5 million metric tons lower than last year. Now 06/07 world ES are estimated smaller than last year for the first time in this marketing year.

"Price projections started at very low prices for last month, but were up from 32-64c/bu from last month to a price level of between $2.81 and $4.62. Obviously, the market is not going to drop to these price levels as these price models are based on the past 9 years of soybean stocks, and with oil prices over $70 crude and biodiesel possibilities, soybeans will not be priced off the old methods (it appears)," Grabanski said.

In fact, Grabanski said that in the past 6 years soybean prices have been more accurately based upon the increased demand picture rather than ending stocks.

"Prices have consistently risen 35-40c per year regardless of ending stocks levels since USDA changed the US oilseed loan rate. Based on the last 6 years of price movements (which have ignored stocks levels), Pro Ag projects 2006/07 prices to average $6 cash (National average soybean prices) UNLESS a major supply problem erupts (a weather based crop reduction). If that occurs, the upside is very large," Grabanski said.

Grabanski added, "Basically, then, based on the last 6 years we predict prices will not stay below $6 cash long this year, and next year the floor will rise to $6.35 and to $6.70 the following year. This will be the floor in soybean prices, and the upside is wide open. This is not a market one wants to be short in with adverse weather forecast for the near term."

Grabanski sees a soybean market which is easier and easier to buy.

"And surprise, surprise, that's exactly what speculators appear to be doing (regardless of projected ending stocks levels). Is this the year soybeans explode in price potential? For corn, it might be too late to cause major crop losses of 10% or more from trend yields, but in soybeans, the yield determining weather is just beginning."

USDA, in its July Supply/Demand report, estimated the U.S. 2006-2007 soybean carryout at 560 million acres. Last month, USDA's 2006-2007 carryout estimate was 655 million bushels.

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