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USDA Supply/Demand numbers set up soybean volatility through summer

Agriculture.com Staff 04/09/2009 @ 7:21am

In its monthly World Supply and Demand report Thursday morning, USDA lowered world soybean production -- largely because of continued poor harvest returns in Argentina -- and likely set off what could be a renewed volatility in the U.S. soybean trade from now through the summer.

USDA pegged global soybean production at 218.8 million tons, down 4.5 million tons from a month ago, "with Argentina accounting for most of the reduction," according to Thursday's WASDE report. The bulk of that decline -- 4 million tons of it -- comes in Argentina, with that nation's crop now seen at 39 million tons.

"Despite rain in much of the main growing area in early March, hot, dry conditions returned in most of the country, leaving yield prospects below last month," according to Thursday's report.

As a result, USDA bumped its price forecasts for soybeans and soy products. The new range for beans is $9.25 to $10.05 per bushel, USDA says, compared to the $8.85-to-$9.85 range from a month ago. Oil is seen at 30 to 32 cents per pound and meal is projected to price around $280 to $300 per ton.

The lower world bean stocks will stoke the flames of volatility in the U.S. soybean trade for the near future, analysts say. Don Roose of U.S. Commodities in West Des Moines, Iowa, says the demand table is now tightened, and demand that usually shifts to South America later on in the U.S. growing season will likely stay in place north of the equator.

"We're in a two-cycle window. Usually, we have the demand in the first half of the year in the U.S. and in Argentina the second half of the year. This now means demand in the second half of the year is going to stay stronger here, and our demand is already tight," Roose says. "We're going to stay with a tight demand table all the way through late summer, making it an increasingly volatile market."

Will this mean more beans going in the ground this spring? It will be a more volatile trade, but one where more beans could be rewarded with higher prices. But, it won't be a market on too even a keel, Roose adds.

"It's going to increase volatility, but if it's more economical to plant beans, that will happen," he says of the prospect of more soybean acres. "You're going to have uncertainty, and that will add risk premiums."

Also in Thursday's USDA WASDE report, the agency pegged U.S. wheat ending stocks 16 million bushels lower at 158.10 million metric tons "as an increase in imports is more than offset by higher projected domestic use," USDA says. Corn ending stocks were also cut by 40 million bushels "as higher expected feed and residual use more than offsets a reduction in food, seed and industrial use." Specifically, feed usage is pegged up 50 million bushels.

In its monthly World Supply and Demand report Thursday morning, USDA lowered world soybean production -- largely because of continued poor harvest returns in Argentina -- and likely set off what could be a renewed volatility in the U.S. soybean trade from now through the summer.

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