March 13, 2006: Latin America - Soybean prices may fall more than 20 percent this year because of record inventories and larger- than normal harvests, said David Kruse, president of agricultural broker and researcher CommStock Investments Inc.
Soybeans, used mostly to make animal feed and cooking oil, may drop to $4.50 a bushel, barring unusual weather damage to crops, Kruse said in a telephone interview from Royal, Iowa on March 8. Soybean futures for May delivery closed on March 10 at $5.8925 on the Chicago Board of Trade.
Supplies in the U.S., the world's largest soybean producer and exporter, rose 8.6 percent to a record 2.5 billion bushels Dec. 1 from a year earlier, according to government estimates. U.S. export orders since Sept. 1 are down 22 percent as avian influenza spread to Europe from Asia, cutting sales of soybean meal used as poultry feed. Growers in Argentina and Brazil, the top exporters after the U.S., began harvesting last month.
``All-time record South American soybean production will not improve demand for U.S. soybean exports,'' said Kruse, 53, who owns a farm in Iowa and runs a company that produces soybeans in Brazil. ``Prices are more than a dollar overvalued.''
Soybeans in Chicago have dropped 7.8 percent in the past year and are down 24 percent from a one-year high reached in June 2005. U.S. crops, after three months of unusually hot, dry weather, were revived by August rains, yielding the second- largest harvest ever.
Combined production this year from Brazil and Argentina will rise to more than 100 million tons from 92 million tons last year, said Kruse, chief executive officer of Brazil Iowa Farms LLC. The company will harvest 10,000 acres of cotton and 12,500 acres of soybeans in the northeastern Brazilian state of Bahia this year.
Brazil will harvest a record 58.5 million metric tons of soybeans this year, up 10 percent from a year ago, the U.S. Department of Agriculture said March 10. Argentina's estimated output was forecast to rise 3.8 percent to a record 40.5 million tons. The estimate for world inventories before the next harvest was raised to a record 54.42 million tons, up from 53.83 million forecast a month earlier and up 21 percent from last year.
The Brazilian Association of Oilseed Industries raised its estimate March 8 for this year's soybean harvest to 57.6 million tons from a February forecast of 57.1 million tons. The group also raised its estimate for soy exports to 24.8 million tons from 24.5 million.
Demand for U.S. soybeans also will be limited by higher interest rates that will boost the value of the dollar. Soybeans sold in the U.S. currency are less competitive for overseas buyers than supplies from Brazil or Argentina, Kruse said.
The trade-weighted U.S. dollar index rose from a eight- month low Jan. 24 to its highest level of the year March 8 on speculation the U.S. Federal Reserve will increase interest rates faster to slow the U.S. economy, increasing the allure of foreign investment in dollar-denominated assets.
``Strength in the U.S. dollar won't help sell grain,'' Kruse said. ``There is substantial upside technical potential in the U.S. dollar because the Federal Reserve isn't going to stop raising interest rates until economic indicators slow.''
Economists in a Feb. 27 to March 7 Bloomberg survey boosted first-quarter growth forecasts to 4.7 percent, the most since the three months ended September 2003 and up from 1.6 percent in the final three months of 2005.
Soybean prices have supported this year by overblown concerns that dry U.S. soils and a deadly fungus will reduce production this year, Kruse said.
Some areas of the Midwest have received less than 50 percent of normal moisture during the four months ending in February, data from the National Climate Prediction Center shows. Severe drought conditions have spread from Texas and Oklahoma to Nebraska and to Wisconsin during the last three months, the weekly Drought Monitor showed as of March 7.
As much as 5 inches of rain have fallen in parts of the Midwest last week. The rainfall boosted soil moisture reserves and confirmed the March 8 National Weather Service outlook for improved soil moisture for the planting season that has begun from Texas to Alabama. Midwest farmers, the biggest growers of soybeans, will start planting in the middle of April.
``The rains have reduced soil moisture deficits,'' improving the chances for early plant growth that helps determine soybean yields, Kruse said.
Soybean prices have risen 6.4 percent from a nine-month low Nov. 29 on speculation a disease will be more difficult to treat this year because the fungus survived the mild winter on kudzu. The disease, called Asian rust, can cut yields as much as 80 percent and was first discovered in Louisiana in November 2004.
Freezing winter weather didn't reach as far south as a year earlier, spreading soybean rust from Texas to Georgia. Soybean rust has been confirmed as of March 9 on Kudzu in 11 counties in Florida, five in Alabama, four in Georgia and one in Texas, the U.S. Department of Agriculture said.
Kruse, who farms 640 acres of corn and soybeans in Iowa, said properly timed applications of fungicide controlled the disease in Brazil and boosted yields almost 8 percent an acre last year on Midwest fields unaffected by that specific disease because it improved overall plant health.
Syngenta AG, the largest fungicide producer in the world, said 570 field trials of Qaudris fungicide, one of three approved in the U.S. to fight the disease, raised average yields as much as seven bushels per acre during the past four years, covering the $22 cost of application.
``We do not expect widespread infection this year, said Valdemar Fischer, regional head of Syngenta's North American crop protection in Greensboro, North Carolina and who is originally from Brazil. ``It's not a difficult disease to manage and we are prepared to have product in adequate supply.''