The Rising Influence of Rising Affluence

[DewDiligence]

MON has seen record sales of soybeans in Brazil and Argentina
in 2011, but the flip side may be lower soybean sales in the US
in 2012. Soy is MON’s second most important product after corn.

http://online.barrons.com/article/SB50001424052748704101304577038183285986946.html

›Soy Story

DECEMBER 3, 2011
By ANDREW JOHNSON JR.

The recent slide in U.S. soybean prices will continue into 2012, as South America ramps up exports and cuts into demand for the U.S. crop.

U.S. soy futures have dropped 22% since Aug. 31, while Brazil and Argentina have been scooping up business from China, the world's leading importer of soybeans and the U.S.'s best customer. Competition from those Latin American countries is likely to become only fiercer next year. Brazilian and Argentine farmers are almost finished planting their next crop, and both are forecast to see bumper harvests starting in late February.

The big harvests will ensure ample global supplies, with the U.S. Department of Agriculture forecasting that Brazil's soy exports in 2012 will surpass American shipments for the first time. The USDA already has acknowledged lower foreign demand, lowering its 2012 forecast for U.S. soy by 215 million bushels over the past seven months, to 1.33 billion from 1.54 billion.

"This shift means the U.S. may eventually need to produce only enough soybeans to cover domestic needs," said Karl Setzer, an analyst for MaxYield Cooperative in Iowa.

With fewer exports, U.S. inventories will return to more comfortable levels, easing concerns over supplies that drove futures to a three-year high in late August. Export demand has a big impact on price, with 45% of the soybeans grown in the U.S. used for exports the last crop year, ending Aug. 31. As overseas demand shrinks, U.S. soybean-futures prices will slip.

The huge jump in South American production is largely due to favorable weather [and also increased use of high-end seeds, especially in Brazil] during the growing season. Brazil and Argentina were left with more beans to sell, and those large inventories allowed them to stay in the export market for most of the year. Foreign buyers have relied primarily on the U.S. for soy supplies from September to January, but that window is narrowing as Latin American production grows.

Brazil's exports could rise 23% in the coming crop year to 36.8 million tons, while Argentina's exports may jump 30% to 12 million tons, according to the International Grain Council. The South American crop year runs from February to January.

Besides competition from Latin America, the U.S. is seeing softening world demand. Strong pricing for much of the year, a slowdown in the global economy and slumping growth in China all are negatives for soybean prices, said Anne Frick, senior oilseed analyst with Jefferies Bache in New York.

Soybeans for January delivery closed at $11.36 a bushel at the Chicago Board of Trade Friday. Frick said the most bullish case for soybeans sees prices in a range of $11 to $13 a bushel. "But with China imports of U.S. soybeans running slow, and large production forecast for Brazil and Argentina, prices could dip to the $8.50-to-$8.80 range by late 2012," she said.

Not only could the weather in Brazil and Argentina translate into another record harvest, farmers got seeds into the ground early, and might be ready to sell their crop earlier than usual. Those factors have shown up in soy prices trading near 13-month lows. But prices have further to fall.

"There is no apparent bullish fundamental catalyst to boost soy prices in the near term," said Bill Nelson, grains analyst with Doane Advisory Service in St. Louis.‹