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News and analysis on the global poultry
and animal feed industries.
on June 4, 2009

Soybean meal prices to remain high and volatile

Grain marketing economist predicts soybean's future

Soybean meal prices through early October are likely to remain "high and volatile, potentially explosive," a leading U.S. grain marketing economist said at the opening day of the World Pork Expo in Des Moines, Iowa, June 3.

"Local shortages of soybean meal in August and September are as definitely possibility with the sharp drop in South America's spring 2009 harvest," said Dr. Robert Wisner, Iowa State University, USA, economist.

August 1 anticipated soybean stocks of just 2.2 week supply versus 3.5 weeks in 2007-08 "is the tightest since at least 1965," Wisner said. Likewise, corn prices are up 29 cents per bushel since "the April 20 break-out," on weather concerns. One report suggests that about 1 million less 2009 corn planted acres, due to late plantings in the Eastern Corn Belt, Wisner noted.

One "wild card" in soybean meal prices, he added, is that 56 million bushels of old crop bean export orders to China have not been shipped and that could be added to new crop meal exports, which would add pressure to prices. Near-term meal futures prices are over $400/ton. "There is a sharp drop in soybean crush, exports are coming up, and China is stocking up on soybeans," Wisner said.

Wisner sees "a little relief" in soybean meal prices for livestock producers in 2010, however.

He expects corn prices to average $4.25/bu., but with yield problems, prices could go over $5. On May 29, July corn futures were $4.36/bu., with December futures of $4.58. He expects volatile corn prices until the June 30 USDA acreage report.

Three driving factors

Several factors are combining to drive feed prices higher. The first is delayed planting of corn acres in the Midwest. As of May 31, 4 million acres were not yet planted to corn in the Eastern Corn Belt. "That’s pretty late," Wisner said, and some of those acres will shift into other crops, and some won’t be planted at all.

A second factor is the huge drop in South American crops that will boost exports of U.S. feed. China, he said, will shift some of its purchases from South America to the United States. In its May 12, report, the U.S. Department of Agriculture estimated total South American corn crop prospects to be down 675 million bushels from 2008 levels, with soybean production down 711 million bushels.

And the third factor is the decline in feed wheat supplies, which has been a competitor to corn. He added that one factor adding pressure to crop prices is a return of commodity investment funds in futures prices, an event he advised producers to watch. Wisner said that weather trouble spots are dry weather in the heart of the key corn/soybean production area in China, and frost on the wheat crop and dry weather in Canada.

For the current crop year, delayed U.S. planting will likely mean yields below trend. In addition, he looks for a sharp increase in ethanol demand from mandates in the energy bill, with increases in biofuel production overall. "Biofuel mandates will be enforced next year," he said. "Biofuels mandates are on a collision course with greenhouse gas emission regulations and allowable ethanol blend levels," Wisner said.

The only decline in demand he sees is coming from reduced U.S. livestock numbers.

The shape of recovery

Looking at the general economy, Wisner looks for three trends:

  • a weaker dollar longer term;
  • increasing inflation beginning in mid 2009; and
  • higher interest rates beginning mid-2010.

Wisner does not see a recovery in the world economy until at least the first quarter 2010. He looks for crude oil prices in the $55-65 level through 2009, then gradually increasing into 2011. This will increase ethanol prices, and when combined with higher government mandates, increase demand for corn. "Higher gasoline and ethanol prices reinforce corn price strength potential with weather concerns."

Wisner sees four types of possible economic recoveries:

  • a V-shape, the sharp decline followed by a sharply higher recovery, a scenario looking less likely;
  • a W-shape, or temporary recover;
  • a U-shape or gradual recovery;
  • and an L-shape, extended period of stagnation (with inflation).

The latter can't be ruled out with cap-and-trade legislation, Wisner said.

He gives a cap and trade bill on greenhouse gases a 50-50% chance of passage, which would increase energy costs. If the U.S. government mandates the use of E-15 ethanol, thus increasing ethanol demand, corn used for ethanol could increase by 43% to 45%. At present, he said, the ethanol industry is just covering its costs if plants have been buying corn in the spot market. But plants that contracted corn last year at higher prices are losing money, and that's been the cause of recent bankruptcies.

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