Analysis: Soy prices to climb with half of crop unsold

CHICAGO Fri Nov 5, 2010 4:29pm EDT

CHICAGO (Reuters) - Grain companies will have to pay up to get deep-pocketed U.S. farmers to part with soybeans, as about half of the crop remains unsold at a time when soymeal demand rises seasonally and the export program could be extended by planting delays in Brazil.

Soybean basis bids -- the amount above or below Chicago Board of Trade benchmark futures prices that grain merchants pay to farmers -- are poised to climb at least until year end after hitting a low for 2010 during harvest last month.

At a soybean processor in Decatur, Illinois, home of Archer Daniels Midland (ADM.N), basis bids rose 25 cents per bushel since October 7 while spot CBOT soybean futures increased about 20 percent. (Graphic: r.reuters.com/ked24q)

"All indications are that it (the basis) will continue to recover strongly for the next few months," said Kevin McNew, president of Montana-based Cash Grain Bids Inc, which monitors the basis at thousands of locations across the United States.

"Usually with beans, more than corn, when farmers are through with harvest and the bin doors shut, that's it," said Diana Klemme, vice president at Grain Service Corp in Atlanta.

"It doesn't mean farmers won't sell, but you have to work to pry them out of their hands through sharply higher prices that they haven't seen before," Klemme added.

BULLISH FARMERS HOLD TIGHT

The U.S. Agriculture Department last week said the average price farmers got for soybeans in October was 14 percent higher than the same month last year. At the same time, farmers were harvesting a record-large crop at a record-fast pace.

U.S. farmers have sold between 55 and 60 percent of their soybeans, slightly more than normal for this time of year because of recent high prices, said Charlie Sernatinger, analyst at ABN AMRO in Chicago.

Due to the larger marketings, the growers may take a more bullish stance when they sell the rest of their soybeans.

"The question is, Will futures do the work or does cash?" Sernatinger said. "If futures keep going up, farmers will give you more and keep cash (the basis) under wraps."

GOOD EXPORT, DOMESTIC DEMAND

La Nina weather conditions have delayed soybean plantings in the top-producing soy state in Brazil, the No. 2 exporter behind the United States, and the late start could extend the U.S. export program.

"The Brazilian crop, with too much rain in some areas and not enough rain in other areas, the crop is being delayed a little bit so we should see the export interest out of the United States go a little longer this year than normal," ADM vice chairmen John Rice said this week in a conference call.

Robust demand from China, which buys about 60 percent of the world's soybeans, keeps supporting soybean prices, which hit a 17-month high on Friday.

Domestic demand for soymeal is also on the rise, with cows, hogs and chickens eating more feed in the colder months. Soymeal futures hit a 14-month high this week.

Meanwhile, farmers have plenty of cash on hand and may delay sales until 2011, a new tax year, said Glenn Hollander, of the cash-connected firm Hollander & Feuerhaken, which has been on the CBOT trading floor for 66 years.

"I don't think you are going to see a lot of beans moving unless the price goes a little bit higher," Hollander said.

(Additional reporting by Karl Plume; Editing by David Gregorio)

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