Hedge funds and other speculators have increased bets on higher prices 10-fold this year, data from the U.S. Commodity Futures Trading Commission show.
The state of the U.S. crop is critical to global prices because it accounted for an average of 45 percent of all shipments over the past decade, USDA data show. That’s down from 63 percent in the previous 10 years as South American farmers expanded production.
Brazil will send 38.5 million tons overseas next marketing year, nine times more than in 1993, the USDA said last month. Its output will jump 23 percent to 82 million tons, exceeding the U.S. for the first time, according to Oil World. That compares with U.S. output of 72.4 million tons predicted in the Bloomberg survey.
The surge in prices is encouraging South American growers to cultivate a record crop that may curb the rally. Combined output in Brazil, Argentina, Paraguay, Bolivia and Uruguay may increase 31 percent to 151.6 million tons when harvesting begins in January, Oil World said in a report Aug. 28.
“South American farmers have plenty of land, soybeans cost less to plant than corn and the record profit potential means every available hectare will go into soybeans,” said Dale Durchholz, the Bloomington, Illinois-based senior analyst for AgriVisor LLC, an adviser to the industry. “The biggest risk to a sustained rally from record prices is that demand may slow more quickly than people expect.”
Futures have averaged $14.24 this year, heading for an annual record. Demand contracted 3.7 percent in the 2008-2009 season, the most in a quarter century, after prices jumped 74 percent in 2007 and economies tumbled into the worst recession since World War II. The economy in China, which accounts for 29 percent of consumption, has slowed for six quarters, and the 27- nation Europe Union, mired in a debt crisis, will consume the fewest soybeans since at least 1999, the USDA estimates.
Soybean consumption expanded at almost four times the pace of the world population since 2000, according to USDA and U.S. Census data. Rising incomes across developing nations increased demand for meat, spurring livestock producers to buy more feed as herds and flocks expanded. China will produce 690 million pigs this year, 36 percent more than at the turn of the century, and consume 36 percent more chicken per person, USDA data show.
Economic growth is also spurring more demand for vegetable oils used in everything from fried and baked foods to candy and breads. Global consumption of soybean oil will reach a record 42.98 million tons next marketing year, more than twice as much as two decades ago, according to the USDA, which updates its estimates at 8:30 a.m. in Washington tomorrow.