U.S. soybeans rallied to a record high Wednesday on fears that the worst drought in 56 years, which has devastated the corn crop, will now turn on soybeans as forecasts called for continued hot and dry weather.
Corn extended gains to within striking distance of a record $8 per bushel, adding two per cent to a 50 per cent summer rally to a 13-month high stoked by the worsening drought that is expanding to the north and west. Wheat futures were buoyed by the gains to the highest level in nearly four years.
"Now, it’s soybeans’ turn. The next two weeks will be critical for them. There is a chance for catastrophic problems in soybeans. It’s waiting for its turn at moisture and so far it’s been ‘Uh-oh, there’s been no change in the weather forecast,’" said grains analyst Don Roose of U.S. Commodities.
"A huge shortage of soybeans is a real possibility," he said, adding that a drought in South America that devastated the crops in Brazil and Argentina, the world’s second and third largest exporters, had made it imperative for top supplier the United States to avoid further crop losses.
Chicago Board of Trade (CBOT) spot August soybeans rose 2.7 per cent to an all-time high of $16.85-1/2 a bushel, surpassing the previous record of $16.79-1.2 set just last week. New-crop November rose two per cent to $16.48/bu.
Spot September corn rose two per cent to $7.95, near a 13-month high of $7.96-1/2 a bushel on Tuesday and close to the record high of $7.99-3/4 set last summer. New-crop December was up 1.7 per cent at $7.84-1/4 a bushel.
Soymeal futures hit an all-time high of $514 per ton as feed supplies in the U.S. continued to erode with the shrinking corn crop. Supplies of the alternative feed distillers dried grain have also tumbled with the slowing of ethanol production on the back of high corn prices.
"The soymeal basis has gone up $7 (per ton) in a week," said grains analyst Charlie Sernatinger at ABN Amro in Chicago. "And the shorts are getting squeezed out of the August (contract)," he added.
The surge in the soy complex, in addition to corn, will continue to cut into margins for meat companies such as Smithfield Foods and Tyson Foods, and ethanol producers who are already cutting back output.
Weather updates showed more hot, dry weather in the U.S. Midwest where the drought is centred, with the light rain forecast for the region’s west and southwest unlikely to provide much relief for crops.
CBOT wheat and headed higher in tandem with corn and soybeans. It also was supported by drought in parts of Kazakhstan and Russia and by rain delays to the harvest in France. The U.S. is the world’s top exporter of corn, soybeans and wheat.
September wheat rose two per cent to $9.03-1/4 a bushel, off the session high of $9.08-1.2, the highest in nearly four years.
Kazakhstan said it expects a below-average crop this year due to drought in its northern grain belt. The country said hot and dry weather would cut its grain crop to 14 million tonnes this year, a decline of 48 per cent on last year’s post-Soviet record and undershooting the average of 17 million tonnes over the last nine years.
Russia may export just 10 million tonnes of wheat this year as grain exports fall by half from last year’s record 28 million tonnes due to low stocks and a drought in the southern breadbasket regions, analyst SovEcon said on Tuesday.
The Energy Information Administration said on Wednesday ethanol production fell 2.3 per cent last week to the lowest level since the government began tracking that data in June 2010.
Jeffries Back oilseed analyst Anne Frick said she had lowered her estimate for 2011-12 U.S. soybean carryout to 146 million bushels, below the U.S. Department of Agriculture’s current estimate of 170 million bushels.
"It (soybeans) reflects the fact usage is too strong relative to the supply. Anytime you have a weather market like this it also makes the old-crop stocks more valuable," said Frick.
U.S. Agriculture Secretary Tom Vilsack said while the drought will result in sharply higher crop prices, there was no need yet to see a reduction in the production of corn-based ethanol.
The surge in wheat prices was taking a toll on end-users.
"The dramatic rise in grain prices in the past few weeks is shaping up to be a serious financial blow for wheat-importing countries," a German trader said. "African and Middle Eastern countries are now facing painful rises in import bills."
The latest example was Jordan, which canceled an international purchase tender for 100,000 tonnes of wheat on Tuesday because of high prices but issued a new tender on Wednesday.
— K.T. Arasu writes for Reuters from Chicago.
USDA’s Vilsack warns on food prices, prays for rain, July 18, 2012
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