The Mighty Bean - Soybean, That Is

June 01, 2009

Soybeans are in the middle of a sustained rally. What's the story?
  • Tight supplies
  • Bad harvests & plantings
  • How to invest

                      

There's no question that May was a good month for soybeans - heck, this whole spring's been good for soybean prices.

 

Spring 2009 Soybean prices

 

Prices increased 12% in May from $10.55 at the beginning of the month, to $11.84 per bushel by the end of the month. And while that is lower than the price this time last year by nearly $2, the trend has been up, for a number of reasons, and may continue to rise.

 

First Up: Production And Supply

The United States is the No. 1 producer of soybeans, responsible for a third of world production. Brazil comes in second, producing 28% of the world's soybeans and Argentina grows another 21% of global supply. Between the three countries, that is 82% of global soybean production. In 2008, that translated to 6,615 million bushels, or 180.1 million metric tons of the little green beans.

Recent estimates of U.S. old-crop soybeans - those still around in silos as of August 31, 2009 before the new harvest starts - depend on who you talk to. The USDA puts old-crop carryout at 130 million bushels, but other estimates on AgricultureOnline say that number could be as low as 60 million to 80 million bushels.

 

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

 

Why the big difference? Hard to say, but the USDA relies on reported data and the analysts the media talk to tend to be the frontline traders, so their estimates may be a bit more accurate.

Either way, supplies are tight - 130 million bushels is about one week's global supply.

South America is nearing the end of its harvesting season - but things haven't been going well this year.

Severe drought has been affecting Argentina since February, resulting in lower crop yields. Farmers' strikes have slowed harvesting and the delivery of crops to market and for export. And finally, last week, with most of the harvesting done, the Argentine Rural Confederation lowered harvest estimates to 30.5 million metric tons - 15.7 million metric tons lower than 2008's production levels. That is a full third lower than last year.

Brazil is also estimating lower harvests, down 4 million metric tons to 57 million metric tons for the current market year.

While Brazil and Argentina are harvesting, the United States is planting, or at least it's supposed to be. Soybean plantings, like corn, have been going slowly in many parts of the country. Any movements of soybeans from the U.S. are from the "old crop" - or the beans that were harvested last fall. And there has definitely been some movement, because demand has stayed healthy.

 

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