Mon, 03 Feb 2014
GLOBAL – Strong soybean demand from China will mean growing stocks are bought and a tight market will run through the year, leaving a bearish outlook.
This year’s large crop issue from both the US and South America means sellers should be looking to make the most of rallies this year, Allendale Inc advised in its Ag Leaders conference on Thursday.
Allendale Broker Manager Steve Georgy anticipates a spring ‘bounce’ in soybean values for May before a price decline.
Allendale’s bearish soybean outlook has a $12/bushel price in May as a highlight before dropping to $10 in July and then $9.20 in October.
Mr George recommends locking in beans at the current level of $12.70, putting in a market floor, giving flexibility should prices lift.
“The previous couple of years the easy thing was to do nothing,” said Mr Georgy. “This year we are going to have to capture rallies.”
He added that rallies could reach $13.60, eyeing August highs of $13.49.
Regarding old crop, Mr Georgy said: “Make sure old crop is protected if you are going to store it. Get protected at $11.”
Mr Georgy emphasised market rallies had to be captured this year and that the beans market could be the ‘most exciting’. It could also be a time to plan ahead to the Soybean market of 2015.
His message was that, the spring bounce aside, prices are ‘heading south’.
The spring upturn looks likely because of Brazil’s perennial trouble at the ports, said Allendale’s head of research, Rich Nelson.
He revealed that, despite efforts to improve infrastructure, Brazilian exports will be plagued by the port situation once more.
Allendale expects a lift in 2014 Brazilian production, to over 90 million tonnes - some sources suggest 93 million is possible – with harvest to start in mid-February. Mr Nelson explained that this crop will meet snags at the ports, which explains the predicted price $12 May price.
“There has been a lot of press covering the logistics issue in Brazil,” said Mr Nelson. “We almost have the same situation as last year.”
He went as far to say that Brazilian congestion problems could mean that the US market sees some stability this year.
The other main competitor, Argentina, which harvests a month after Brazil, is bearish and may struggle amid fiscal troubles. Currently, the dollar is worth 12-12.5 pesos, something Mr Nelson described as ‘worrying’ for Argentina.
However, it is not all bad. Argentina’s lower costs mean a production advantage remains over Brazil.
Like Brazil, Argentinian output, as well as Uruguay and Paraguay is set to rise. Allendale and US Department of Agriculture figures suggest a crop of 56 million tonnes, up from 53/54 tonnes last year.
Mr Nelson also reassured that there would be people wanting to buy it.
“China requires so much they have to shift to new crop from the US while buying old crop elsewhere,” said Mr Nelson. “They need to do this just to get on the books.”
For those worried at China’s recent demand for old crop from South America, Mr Georgy said this is perfectly normal.
China’s meal needs have risen around 5 per cent. Allendale analysis also shows a 16 per cent rise over the past 15 years.
Currently, this demand has seen Qingdao, China’s biggest soybean port, importing at $18. 43/bushel. This was $677/ tonne last week.