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Soybean futures hit record territory

07/20/2012 @ 2:59pm

U.S. soybean futures closed at record highs Friday, as traders continue to price in the risk of additional crop losses from a U.S. drought.

Soybean futures were the leader of the CBOT grain complex. Investors are worried about declining yield and supply potential, as the U.S. crop enters its crucial reproductive phase under stress from heat and dryness.

"The market is pricing in more and more risk of soybean crop losses," said Sterling Smith, analyst with Citigroup Global Markets Inc. in Chicago.

Traders have priced in a fair amount of crop losses with record prices. Rains could be a "salvation" for bean crops, but each day it doesn't rain that "salvation" dissipates, Mr. Smith said. (Story continues below video.)


Traders acknowledge U.S. soybean production has no room for error in 2012, with U.S. inventories already forecast to dwindle to precariously tight levels by 2013.

The issue for U.S. crops is that areas in the western Midwest that were counted on to offset yield losses in the eastern Midwest are now under stress as well.

"No serious relief from drought conditions is on the radar for the U.S. corn belt," said Drew Lerner, meteorologist with World Weather Inc.

There is a risk of some periodic showers, but not enough to turn around the damage inflicted on crops in recent weeks, Mr. Lerner said. The western corn belt will experience some seriously hot weather next week, with no appreciable rains on tap.

"This pattern could stay intact for the rest of the summer," Mr. Lerner added.

Traders and analysts are factoring in risk amid the uncertainty of how far U.S. soybean yields could fall if the current hot, dry trend were to persist in the weeks ahead.

Analysts already expect greater demand for U.S. soybeans this year after drought shrank soy crops in key producers Brazil and Argentina earlier this year.

"U.S. soybean supplies on hand are miserably tight and it feels like South American supplies are nonexistent at this point," Mr. Smith said.

The U.S. is the only source for world soybean supplies until South America harvests its next crop in 2013, Mr. Smith said. Prices are rallying in an effort to ration demand, as unlike corn, livestock feeders don't have a lot of alternatives for a good source of protein aside from soybean meal, Mr. Smith added.

Soybean meal, the byproduct of crushing soybeans, is trading at record levels.

CBOT August soybeans settled up 23 3/4 cents or 1.4% at $17.57 1/2 a bushel, and November beans ended 34 cents or 2.1% higher at $16.86 1/4. August soymeal finished up $11 or 2.1% at $543 a short ton.

Separately, spot corn futures settled at a record high, as traders acknowledge corn yield losses are irreversible from the U.S. drought. Wheat futures ended higher, supported by strength from corn and worries about European wheat production.

CBOT September corn ended up 16 3/4 cents or 2.1% at $8.24 1/2, and December corn ended up 17 1/4 cents or 2.2% at $7.95 3/4.

CBOT September wheat rose 8 1/2 cents or 0.9% to $9.43 1/4, September KCBT wheat closed 3 cents or 0.3% higher at $9.41, and MGEX September wheat settled up 9 1/2 cents or 0.9% at $10.31 1/2.


Write to Andrew Johnson Jr. at andrew.johnsonjr@dowjones.com
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(END) Dow Jones Newswires
July 20, 2012 15:52 ET (19:52 GMT)
DJ US GRAIN AND SOY REVIEW: Beans Extend Record Highs on Crop Threats->copyright

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