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China chews through U.S. 'old-crop' soybeans

CHICAGO, Illinois (Agriculture Online)--The U.S. supply of 'old-crop' soybeans is projected to be the smallest ever this summer.
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That is creating a run-up in CBOT soybean futures prices. The July CBOT soybean prices, at $11.85 per bushel, jumped 76 cents from Sunday night to Wednesday

The price surge is also sparking world buyers to secure supplies ahead of any demand-rationing.

A few well-respected U.S. trading firms this week estimated very tight old-crop soybean ending stock estimates. These estimates represent the 2009 soybean crop-year that ends August 31.

Most trade estimates for the U.S. old-crop soybean carryout on August 31, 2009, range between 60 and 80.0 million bushels, vs. the USDA's estimate of 130 million.

"An extraordinarily tight number by historical (or any) standards," says Vic Lespinasse, CBOT market analyst and floor trader with GrainAnalyst.com.

The U.S. domestic soybean meal crush runs about 120 million bushels per month between August and November. By November, crush is ramped up to 150 million bushels. "So, we're going to either run out or ration the crusher," the unnamed floor trader says.

HOW IT HAPPENED

The idea of tightening U.S. old crop soybean stocks has been around awhile. But, it's been a quick turnaround in perception, CBOT floor traders say.

The road to very tight supplies started with the Chinese government announcing it is procuring 7.0 million metric tons of soybeans for its state reserve.

On Wednesday, news reports indicated the Xinhua, the official Chinese news agency, says unnamed Chinese experts want the government to use some of its massive foreign currency reserves to build up a Chinese bean stockpile of 50 million metric tons.

Lespinasse says this is unimaginable and will not happen. "But it makes one wonder why Xinhua would even print such a story."

China announced its stockpiling initiatives at a time when Argentina's 2009 soybean production, hurt by drought, was much worse than people thought.

On Wednesday, the Argentine Rural Confederation (CRA), an Argentine farm group, estimates Argentina's soybean crop at just 30.5 million metric tons, below earlier estimates from other Argentine groups of 50.0 million.

Plus, Argentine exports have been hurt as a result of farmer strikes. In addition, Brazil's soybean production is down a few million metric tons.

WORLD SOYBEAN CONSUMPTION

The world consumes roughly 6.0 million metric tons of soybeans per month. Brazil has been working hard to put out 4.0-4.5 million metric tons a month. Argentina's exports have been hit-and-miss with about 1.0 million metric tons. That leaves the U.S. to export 1.0 million metric tons of soybean exports.

As world buyers find the U.S. as the more reliable supplier of soybeans, more business than expected is being done.

The Chinese front-run the rest of the world on soybean consumption. They started their soybean stockpiling before anyone realized the lower world soybean production, such as in Argentina and Brazil. As a result, regular U.S. soybean product customers such as Mexico, Japan, Taiwan, and Europe have been scrambling looking for secured supplies. "They don't want to wait for the fall harvest and find out there is nothing to buy, because everything is bought up already," one CBOT floor trader says, choosing to remain anonymous.

SOYBEAN PRICES SPIKE

Price-wise, traders came into the week thinking soybeans were high enough. Subsequently, Egypt, an unusual customer, buys 120,000 metric tons of old-crop U.S. soybeans."It's an odd name. For a nation like that to come in and buy at this point, is creating sharply higher U.S. soybean business at this time of the year," the CBOT floor says.

ENCOURAGING FARMER SALES

A separate supply problem occurs when the U.S. crushing companies have to take a month off, due to a rationing move. At that point, where will buyers get soymeal supplies?

An early U.S. Delta harvest is being counted on to help out with a short U.S. soybean supply, traders say. "We'll be looking for new-crop soybeans this fall coming off the farm and right to the market. The only way to incent that is with high prices," the anonymous CBOT floor trader says.

ALL EYES ON CHINA

While one never knows where China will quit buying soybeans, there are a few indicators to watch for clues.

Jason Ward, Northstar Commodity Investment Co., says watch the domestic price of Chinese soybeans. "Wednesday night, China's beans settled at $14.88 per bushel, up 20 cents. If their domestic price stays well above U.S. prices, it is hard to forecast that they stop buying. Landed prices, to China from the U.S., range between $12 and $12.50. So, China is still buying our product considerably cheaper."

Secondly, as long as soybean crush margins remain positive, China should continue to buy beans. "They are making between 70 and 90 cents/bushel in crush margin right now, and that margin is even better buying U.S. soybeans than crushing their own," Ward says.

Finally, China's soybean-buying appetite can be tracked by the Chinese Stock Market, Ward says.

"The Shanghai Index is in a 7-month high trading pattern and at the highest level since August of last year. China is leading the global economic recovery, and with continued stimulus from the Chinese government, it appears they are going to continue to grow," Ward says.

When one of the above items changes, it would raise a red flag for this old crop soybean story, Ward says. But, as long as all three continue to be working, higher prices are still ahead.

CHICAGO, Illinois (Agriculture Online)--The U.S. supply of 'old-crop' soybeans is projected to be the smallest ever this summer. .

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