USDA Supply/Demand report stokes the fires in the battle for acres
With U.S. corn, soybean and wheat ending stocks pegged lower in Tuesday's USDA Supply and Demand report, the battle for acres may enter winter favoring a soybean bump next spring, one analyst says.
The 25-million-bushel drop in soybean ending stocks indicated in Tuesday's report was not unexpected considering the soybean crush increase of late. Demand will likely go nowhere but up, and this sends a signal through the market that more acres will be needed next spring to continue to meet the trending demand, according to Alaron Trading senior grains analyst Tim Hannagan. Without bumping up soybean acres, Hannagan says current demand would dry up U.S. stocks by May 2009.
"The soybean market is really going to be the leader going into next year. Corn spent last year going after that $4.60 figure to get those acres, and soybeans are now facing that situation," Hannagan says. "If we were to plant six million acres with no change in demand, ending stocks for 2008 would be under 100,000 bushels."
An additional seven to eight million acres will be needed in '08 to meet the demand currently tracking in the market, Hannagan adds. Price-wise, he expects the March '08 soybean contract could reach $12.75, a level that would be sufficient to encourage the required acreage bump.
Beyond the U.S., conditions in China and South America will continue to pressure the domestic soybean market. Chinese bean stocks are expected to decline as the nation's protein needs increase, mainly through livestock expansion. Hannagan says Chinese leaders have set a goal to double the nation's hog herd by 2012, and this is indicative of the growth that's driving soybean purchases on world market.
"A lot of business China's doing is overbooking for future delivery," he says. "If it looks as though South America will produce what we expect, look for China to cancel delivery and rebuy cheaper."
South American production still remains a wildcard, however. With a solid La NiÃ±a pattern settled in, long-term moisture concerns are running high in Brazil and Argentina, and this could have potentially grave effects on the soybean crop there.
"Though there has been some improvement in recent days, I believe that the weather pattern coming up for Argentina and southern Brazil is still something worth watching as we start to approach some critical times in the growing season for the soybean and especially corn crops grown in that area," according to Tuesday's Freese-Notis Weather, Inc., weather market commentary. "Yesterday and overnight brought decent rains to a good part of the corn/soybean belt of Rio Grande do Sul of Brazil. While this rain certainly improved topsoil moisture supplies in those areas, it did not do a lot with regards to longer-term moisture improvement...It is very difficult to tell when Argentina and southern growing areas of Brazil will again see appreciable rainfall.