Chicago Soybeans at Record High with Concerns of Shrinking Global Supply

on Sep 13, 2012

Soybean prices on the Chicago Board of Trade (CBOT) hit a record high on Tuesday (September 4) on the back of escalating fears about falling global soybean supplies. Concerns are raised after the worst drought in the US in half a century devastated the oilseed crop and after Brazil, the world’s second-largest soybean exporter, reported a sharp fall in monthly exports.

Soybeans for September delivery at the CBOT closed up 6 1/2 cents, or 0.4 per cent, to $17.71 (£11.06) a bushel, an all-time high close for front-month soybeans. Chicago soybeans were partly pushed to these highs by the reported on Monday (September 3) falling exports from Brazil which highlighted the decline in global soybean supplies. The Brazilian trade figures for August showed soybean exports totalled 2.4 million tonnes, or more than 40 per cent drop from July data when international commodities traders snapped up 4.13 million tonnes amid a sharp fall in available supplies from the United States.

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!m[](/uploads/story/348/thumbs/pic1_inline.png)“Brazil’s exportable supply of soybeans is running out,” said for The Financial Times Chris Gadd, commodities analyst at Macquarie Group in London, adding that, even at these levels, demand from overseas buyers was holding up. Demand for soybeans remains strong even at record high prices, with buyers snapping up cargoes from the United States, Brazil and Argentina, the three countries which account for 90 percent of global exports.

As Brazil is the world’s second-largest exporter, the decline in its sales would mean that demand and exports will intensify for oilseeds from the United States. Yet the US is also facing decline in soybean supplies. The worst drought in at least 56 years in the US Midwest and Great Plains regions on the country’s oilseed has cut production more than the government forecasted last month. According to Allendale Inc., a worldwide agricultural advisory and research firm, soybean production in the US may fall 15 per cent to 2.602 billion bushels from a year earlier. That compares with the US Department of Agriculture’s estimate of 2.692 billion on August 10.

Escalating concerns over the impact of the recent drought in the US coupled with Brazil’s export data have fuelled the rally in soybean prices, pushing them above record levels seen during the 2007-08 global food crisis. In fact, several UN agencies analysing the grain production and supply trends even warned of a “repeat of the 2007-08 world food crisis”. The UN’s Food and Agriculture Organisation, the International Fund for Agricultural Development and the World Food Programme called for urgent action “to make sure that these price shocks do not turn into a catastrophe”.
Notwithstanding the UN agencies’ warns, many traders and analysts said that the drastic jump in soybean prices was early-month speculative buying from commodity funds rather than due to any change in fundamental input. The market price has also gained support from strong demand from China, the world’s top buyer of soybeans, analysts say.


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