Soyabeans to stoke food price inflation
By Javier Blas in London
Published: November 28 2007 20:50 | Last updated: November 28 2007 20:50
Policymakers already concerned about the relentless rise in global food inflation are facing more bad news in the shape of soaring soyabean prices.
Soyabean prices have risen to their highest level in 34 years, boosted by strong Chinese demand and fears that current prices are not high enough to swing acreage from corn to soyabeans in the US, the world’s largest producer.
In Chicago, soyabean prices this week hit $11.14 a bushel, the highest level since July 1973, helped by rising demand from the biofuel industry as crude oil prices approached $100 a barrel and also by worries about the Brazilian crop – the world’s second largest – after dry weather in Mato Graso state, the key producing area. Soyabeans traded on Wednesday at $10.85½ a bushel.
The price jump threatens to resonate through the supply chain, boosting meat and poultry prices because soyabean is used largely for animal feed, analysts warned.
The surge in soyabean costs – coupled with price increases in other feedstock, such as wheat and corn – could prompt some farmers to abandon production of pork, beef and lamb amid mounting losses, paving the way for higher meat prices in the future.
Food inflation is already a big concern for policymakers in developed and developing countries. German inflation has just hit 3 per cent for the first time since at least 1995 on higher food and energy costs while Chinese inflation has surged to a 10-year high.
Together with corn, rice and wheat, soyabeans are one of the world’s key crops. About 80 per cent of the harvest is processed into soyameal and cakes for livestock feeding, while the other 20 per cent is converted into oil for human consumption (and more recently also to feed the biodiesel industry).
Peter Thoenes, an oilseeds specialist at the UN Food and Agriculture Organisation in Rome, said that Brazil and other South America soyabean crops were now key to offsetting the shortfall from the US, after farmers in the world’s largest soyabeans-growing region converted some of their acreage to corn.
“Any unfavourable weather in South America could spark a price hike,” Mr Thoenes said.
The lower soyabean crop coupled with higher demand for animal feed and for biodiesel production has led to a fall in global inventories, with the stock-to-use ratio at the lowest level for at least five years, according to FAO estimates.
Currently stocks are equivalent to 10 per cent of annual demand.
Gavin Maguire, of Iowa Grains in Chicago, said: “Surging demand combined with the lingering effect of reduced US production in 2007 make complete inventory depletion a real possibility.”
The Chinese government has recently encouraged soyabean purchases, reducing temporarily the import tariff from 3 per cent to 1 per cent in an effort to bring down local prices. Beijing hopes the measure, which expires in late December, will boost pork production, after a disease earlier this year killed millions of pigs.
World Oil, the Hamburg-based consultants, yesterday said additional large-scale Chinese purchases were “likely in the near to medium-term”. China is the largest world importer, acquiring about 40 per cent of the world’s traded soyabeans, followed at a large distance by the European Union and Japan.
Earlier this year soyabeans became the latest victim of the agricultural market’s turf war, after US farmers responded to higher prices for corn in late 2006 by increasing the acreage they devoted to corn to the highest level in over 60 years.
That increase led directly to a sharp reduction in soyabean acreage and, to a lesser extent, wheat and cotton.
The soyabean-planted area in the US dropped this year by about 16 per cent to 63.7m acres, according to the US Department of Agriculture. The acreage fall, together with lower yield productivity, cut soyabean supply to 2.6bn bushels, down 19 per cent from last year’s record production.
Lewis Hagedorn, agriculture analyst at JPMorgan in Chicago, said: “Soyabeans need to purchase back acreage from corn ahead of next spring’s planting season.”
So far, it is unclear if current record prices will be enough to convince farmers to switch crops because corn prices for next year’s harvest season remain high.
CBOT December 2008 corn, the futures contract that corn farmers use to measure the profitability of their crops, is trading at $4.25 a bushel, well above current spot prices of about $3.80 a bushel. Meanwhile, CBOT November 2008 soyabean, the benchmark for next year’s crop, trades currently at $10.20 a bushel, below spot prices.
Although the corn to soyabean price ratio has recovered from last year’s low of 1.8 times – prompting farmers to abandon soyabeans in favour of corn – at 2.4 times it is not high enough to convince farmers to move back to the oilseed, according to analysts.
Mr Maguire said that if corn prices remain close to $4 a bushel, then soyabeans will need to scale the $12-a-bushel mark “in order to establish the key 3-to-1 ratio that would bring about a ramp-up in soyabean production”.
Copyright The Financial Times Limited 2007
