U.S. cash soy markets sizzle on long tail to export season

CHICAGO, April 26 Fri Apr 26, 2013 4:17pm EDT

CHICAGO, April 26 (Reuters) - U.S. soybean crushers are running at reduced capacities and bidding record premiums for beans from tight-fisted farmers as demand for protein-rich animal feed has shown few signs of slowing down amid port congestion during bumper harvests in South America, processors and traders said on Friday.

Big processors such as Archer Daniels Midland Co, Bunge Ltd and Cargill Inc that crush soybeans and then sell meal and oil have struggled to buy beans from farmers who refuse to sell any leftovers from last year as a price hedge against the possible return to drought conditions.

Farmers sold their beans for as much as $17 per bushel at harvest last autumn after the worst drought since the Dust Bowl sapped yields. Prices are now hovering between $14 and $15 and growers are holding out for more money.

"It's extremely tight. We don't have any beans bought," said Ronnie Edge, the marketing manager at Owensboro Grain Co, a soybean processing plant along the Ohio River in Kentucky.

Owensboro Grain is running only one of its two soybean extractors at the facility, Edge said, while a plant owned by Bunge in Morristown, Indiana, is also said to be running at half capacity. Bunge, the agribusiness company based in White Plains, New York, earlier this month shut down a plant in Emporia, Kansas, until the autumn harvest.

Soren Schroder, who will take over as Bunge chief executive on June 1, warned in a conference call this week that port congestion in Brazil could lead to lingering tightness in soybean and corn supplies in the United States.

RECORD BASIS

Basis bids, or the amount above or below CBOT futures that dealers are willing to pay for beans, are at their highest ever for this time of year at most U.S. soy processors and are approaching the all-time highs seen during the summer of 2009, another year of historically tight supplies.

Bids typically hit their seasonal highs when supplies dwindle in the weeks before harvest. The sharp gains so early this year portend the likelihood of record basis levels this summer, experts said.

Soy futures declined to a 10-month low this month at the Chicago Board of Trade on expectations of big global production. The downturn in futures forced dealers to boost basis bids to make up the difference in the flat cash price.

"Cash is as hot as I have ever seen it this time of year," said Charlie Sernatinger, an analyst at ABN Amro in Chicago and market veteran of 37 years.

The soy basis in Decatur, Illinois, where ADM has its headquarters, rose to $1.10 per bushel above futures this week, compared with just 12 cents a year ago. Bids there hit a record of $2.15 above futures in mid-September 2009, Reuters data shows.

Brazil is expected have a record-large crop and overtake the United States as the world's top soy producer. Argentine, the top exporter of soy products meal and oil, is also gathering their largest crop in four years.

But port delays in Brazil are as long as two months, while Argentine farmers are holding their supplies, with domestic financial uncertainty prompting them to save in soybeans rather than pesos.

U.S. SOYMEAL EXPORTS NOT LETTING UP

So even as cash prices for soy plunges in South America, foreign importers are turning to the United States, where mature port infrastructure can allow shippers to more speedily transport cargoes around the world.

With six months remaining in the soymeal marketing season that ends on Sept. 30, U.S. exporters have already committed to deliver 8.58 million tonnes of meal, while the U.S. Agriculture Department is forecasting 8.48 million tonnes for the entire season.

Exporters expect some buyers to cancel deals with U.S. shippers as more supplies become available from South America, but that has yet to happen.

Meanwhile, traders in the United States are reluctant to offer soymeal because bean supplies are so tight after last summer's drought reduced yields, bringing the current stockpile to the smallest in at least nine years.

"This is certainly unsustainable because of the bean supply, but the trade continues to be surprised each Thursday with the export announcement," a soymeal export trader said.

Edge, in Kentucky, said he was hopeful of taking delivery of soybeans from the Chicago futures market. But with cash bids so high, little to no deliveries against futures were expected by traders on first notice day for May contracts next week.

Still, farmers could sell some of what remains from last year's harvest once they sow this year's crop. Soy plantings are expected to begin next month in the U.S. Midwest.

"We will stay hot into the beginning of June," the analyst Sernatinger said. "The farmers will get comfy with their new crop and unload."