U.S. soy supply at 48-year low as Brazil ships held

Processing Profit

Demand in the U.S. for soy-based meal and oil also is improving, compounding the erosion of inventories after the worst drought since the 1930s reduced domestic production for a third straight year. The Washington-based National Oilseed Processors Association said Jan. 14 that companies used 9.7% more soybeans in the four months ending Dec. 31, compared with a year earlier.

Archer-Daniels-Midland Co., the largest grain processor, said on Feb. 5 that operating profit in its oilseed unit more than doubled to $411 million in the fiscal second quarter that ended Dec. 31, as plants ran at record capacity. The company, based in Decatur, Illinois, will continue to benefit from improved soy margins, Kenneth Zaslow, an analyst at BMO Capital Markets in New York, said in a Feb. 6 report. He has an outperform rating on ADM.

The estimated profit to process soybeans in Illinois is $1.47 a bushel, up 77% from a year earlier, USDA data show. Based on futures prices, crush margins will double from year-earlier levels in the second quarter and triple in the third quarter, Zaslow said.

‘Behind Curve’

“Inventory levels are really tight right now,” and there remains a risk that U.S. harvests in September and October may not be sufficient to revive supplies, said Kelly Wiesbrock, a portfolio manager helping to manage $1.3 billion of assets for Harvest Capital Strategies, a San Francisco-based hedge fund.

As of Jan. 29, the U.S. Drought Monitor classified 51% of nine Midwest states with soil-moisture levels below 20% of normal, including some at zero, with water shortages and crop damage likely. The region produces most of the nation’s soybeans. A year earlier, 20% was in drought.

“We’re still behind the curve on moisture levels and a lot of guys are saying we’re setting up for another drought,” said Wiesbrock, who grew up on a farm in Illinois, where his brothers, father and grandfather still grow corn and soybeans on 3,000 acres. “We may get off to a good start and have trend- line yields and they’d be less tight, but you don’t rebuild inventories in one year and we don’t harvest until the end of the year.”

Bloomberg News

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