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Soybean rallies coming down the road

Anne Frick isn’t highly bullish long-term for soybeans, but she does see potential for a couple good rallies later this year. The senior oilseed analyst for Jefferies Bache in New York says you should watch for these developments.

Short stocks in March. One billion bushels: Watch for this number in the USDA March 1 report of U.S. soybean stocks. If it’s that or less, it’s bullish. We’ve had a big movement of U.S. soybean exports in the first half of the marketing year (started last September 1), bigger than can be maintained for the full year. Because there was a shortfall in last year’s South American soybean crop from dry weather, a lot of early export booking was done when the U.S. drought kicked in. “If the recorded stocks of soybeans is 1 billion bushels or less,” says Frick, “it will predict much more rationing of supplies is needed. Stocks were 1.3 billion bushels last year, and this could be the lowest since 2004.”

Logistical problems in South America. They have problems (trucks and barges) in getting crops delivered to terminals. “They are going to produce a record large crop, we know that. The question is by how much,” Frick says, with the biggest issue being excessive moisture in some growing regions. “Big crops of both soybeans and corn could slow movement in Brazil. In Argentina, they harvest later, closer to our summer, and the question there is the pace of farmer selling. If it is slow, that could also add a bullish side to soybeans this spring.”

U.S. weather. Most people are still worried about lingering dry weather here in the U.S., and that discussion will heat up this spring as planting approaches. The bigger worry will be about the corn crop, not soybeans. Frick points out that corn yields in the 2012 drought were more disappointing. The national corn average of 122 bushels an acre was only 73.7% of the trend yield projected last spring. Soybeans, on the other hand, at 39.5 bushels an acre made 89.5% of trend yield, despite drought.

Put these together – very short stocks, poor South American crop delivery, continued dry weather worries - and Frick thinks soybeans could rally to the $15-$16 per bushel range in July futures. That would be a new record high for that month, but still short of the all-time high of $17.95 set late last summer in the September contract.

After the spring price bump, Frick says the next one could come in the late summer or fall of 2013. “I think U.S. usage will pick up and if we have a good crop, then we could see a nice post-harvest advance,” she says. “If we have a poor crop, the highs are likely to be made early as was the case in 2012. The South American supplies could be depleted to world demand by fall, and depending on our weather, it could be a marketing opportunity for soybean farmers,” she says.

Longer term, Frick is more tempered about soybeans relative to corn: “We still have to face the growing export competition for world soybean markets, competition that corn doesn’t face to the same degree,” she says. She thinks U.S. farmers will find a few new acres for both crops, partly due to land coming out of CRP fallow, and more acres of soybeans double-cropped after wheat where that system is possible. Her early call is to bump soybean planted acres to 79 million acres in 2013, up from 77 million last year.

Why the rally in meal? Soybean meal has been the leader of the soy complex in the last few months. While meal has rallied over 30% in the last year, from about $300 a ton to about $400, whole soybeans have increased about 20%, and soybean oil has been relatively stable pricewise. Frick says the reason for that is that soybean meal represents about 70% of the world protein meal supplies [includes fishmeal, rapeseed meal, and a few others]. In contrast, soybean oil is less than 30% of the world vegetable oil market [palm oil, cottonseed oil]. “When we have soybean production problems like the drought, it hits the soybean meal market harder than oil,” she says. “Oil prices hardly noticed the drought. We may call them an oilseed crop, but make no mistake about it, soybeans are really a meal seed.”

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