Commodity News Service Canada – A surge in soybean values at a time when supplies are at a record level shouldn’t be mistaken for a breakdown in fundamental factors affecting supply and demand, according to the chief economist for AgResource.
“The soybean market has gone up 12 to 13 per cent in the last 30 days; people look at the price action and say, ‘well the fundamentals must have changed.’ But we don’t believe it has,” said William Tierney, a speaker at this week’s Cereals North America conference in Winnipeg, Manitoba.
The $20 difference between the two nearest soymeal futures contracts is further evidence of a temporary short-run phenomenon, said Tierney, who attributes the rally to rail difficulties in the US.
“We’ll be watching how quickly it takes for rail difficulties to resolve themselves, for meal supplies to catch up to demand and be priced at a more fundamental level,” said Tierney.
The second biggest factor behind the surge in prices is weather in South America. Over the next two to three months Tierney will be watching to see if conditions stay reasonably good. He feels another record crop could be on the way if farmers get trend yields.
“Perhaps the January, March contract will trade down to the mid-$8.00 level. I think you’ll see the $7.00 number a year from now,” he said, stressing that could change if the weather is poor. January soybeans closed at $10.2975 per bushel on October 30.
Another factor worth watching is Chinese imports, said Tierney.
Calculating imports from the Asian giant is extremely difficult, according to Tierney. For one thing, livestock numbers are notoriously unreliable making most pork and poultry numbers unworkable in a proper model. Recording crush margins and forward pricing margins is another approach that’s been tried, but even that data often doesn’t correlate with the actual soybean imports, he said.
“In the end you’re left with simply counting boats. (Carrying supplies) from Paraguay, Brazil and Argentina and the U.S. and figuring out which ones are headed to China,” he said, adding that ships departing in September were counted as October imports.
Using data taken from the first 45 to 60 days of the current marketing year, Tierney says Chinese looks like it’s importing 12 per cent less soybeans that it was a year ago. That flies in the face of USDA predictions that call for China’s projected annual imports to rise by seven per cent.
“But we don’t get official Chinese data for another 12 or 12 days,” said Tierney.
He added they are only on their second month of boat-counting so they have another 10 months to go before they know how accurate the method is.