High soybean oil values lead market rally

21-11-2007 | |

USDA raised its 2007/08 forecast of the US average soybean price to a record high $8.50-$9.50 per bushel from the previous range of $7.85-$8.85 per bushel.

The season-average price for soybean meal is expected to rise to $235-$265
per short ton, well above the 2006/07 average at $205 and the strongest since
2003/04. Due to smaller domestic oilseed harvests this year, 2007/08 soybean oil
imports by China are forecast expanding to 2.6 million tonnes (mt) from 2.4 mt
last year, while palm oil imports are seen up to 5.7 mt versus 5.1 million in

Indonesian output of palm oil in 2007/08 is forecast up 10 % to
18.3 mt due to a 10-% increase in productive oil palm area to 5.3 million
hectares. Indonesian palm oil exports in 2007/08 could increase 15 % to 13.6 mt,
which would maintain a tight rein on global stocks.

Prices to further
USDA shaved 4 million bushels off the 2007 soybean production
estimate this month to 2.594 billion bushels. The crop reduction led to a
lowering of the 2007/08 ending stocks forecast from 215 million to 210 million
bushels. No changes were made in the soybean crush or export forecasts this

Although the soybean harvest was 92 % complete as of November 4,
it has put minimal pressure on prices this autumn. In fact, there may be room
for further increases in soybean prices. In October, the average farm price
increased to $8.58 per bushel, up by more than a dollar from August.

Despite the large gains, the post-harvest averages have been curbed by
prior sales booked at the lower prices prevailing several months ago. With
deferred futures contracts indicating a very attractive price outlook, farm
sales have slowed. As a result, the cash basis relative to January futures
prices is beginning to strengthen in favour of farmers.

Storage costs
However, storage costs also escalate as the crop becomes more
valuable, which will eventually accelerate farm marketing. Throughout the US,
current cash prices already exceed $9 per bushel. Accordingly, USDA raised its
2007/08 forecast of the US average farm price to a record $8.50-$9.50 per bushel
from the previous $7.85-$8.85.
For soybean oil, negligible growth is expected
in 2007/08 for its domestic consumption in food.

Soybean meal prices
Soybean meal prices have also strengthened considerably over the past
6 months. The October average price for soybean meal in central Illinois surged
past $260 per short ton. The season average price is expected to rise to
$235-$265 per short ton, well above the 2006/07 average at $205 and the
strongest since 2003/04. Steady domestic use and export commitments are helping
to hold up soybean meal values. Forecast exports of US soybean meal were edged
up this month to 8.3 million short tons.

South America expands
As in Brazil and Argentina, producers in Paraguay are responding to
the attractive price incentives for soybeans. In 2007/08, soybean harvested area
in Paraguay is anticipated to rise by 8 % to 2.6 million hectares. Crop
production is expected up to 6.5 mt from 6.2 million last season.

whole increase could be used to expand soybean exports from Paraguay to 4.9 mt.
More than 40 % of the country’s soybean exports may wind up at Argentine
crushing mills. To help occupy Argentina’s massive processing capacity, soybean
deliveries by river barge between the two countries have grown quickly over the
past few years. Argentine soybean imports are forecast to edge up to 2.1 mt in
2007/08 from 2 million the previous season.


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