Record U.S. soybean crop seen extending bear market

Weather Risk

With the U.S. harvest still four months away and about a third of Midwest fields unplanted, unusual weather may yet limit output. In each of the previous two years, the USDA’s forecasts in June were higher than the final tally seven months later.

Wet, cold weather the past two months from North Dakota to Illinois is increasing risk of lower yields, said Gregg Hunt, an analyst at Archer Financial Services Inc. in Chicago. Planting is off to the slowest start since 1996, with 71% complete on June 9, compared with a five-year average of 84% USDA data show. Unless there is drier weather farmers may decide to leave fields fallow, he said.

About 17.67 inches (44.9 centimeters) of rain fell in Iowa, the biggest U.S. producer, from March 1 through May 31, the most in state records that began in 1873. MDA Information Systems LLC in Gaithersburg, Maryland, said last week that late planting and rising crop-insurance claims will force the USDA to cut its output forecast.

Hedge Funds

Soybean prices jumped 7.9% in May, the biggest gain in 10 months, on concern that U.S. supplies will remain tight before the harvest. Hedge funds and other largest speculators boosted bets on a rally for four consecutive weeks and to the highest in almost seven months, U.S. Commodity Futures Trading Commission data show.

Farmers are holding onto inventories and costs for livestock feed are still rising, Joe F. Sanderson Jr., the founder of Laurel, Mississippi-based Sanderson Farms Inc., the third-largest U.S. poultry producer, told analysts on a conference call June 4. Soybeans are crushed to yield oil used for food and meal used in feed.

Supply may be disrupted by a strike in Argentina, where farmers plan to suspend trade for at least seven days, Eduardo Buzzi, the head of the Argentine Agrarian Federation, said in an interview with Radio Mitre on June 9. The growers are protesting tax increases, government policies and a lack of railways.

Lower Forecasts

Soybeans will average $11.75 in 2013-2014, 16% less than in the previous season, Deere & Co., the world’s largest agricultural-equipment maker, forecast May 15. The Moline, Illinois-based company was anticipating $12.50 in February. Rabobank International expects a fourth-quarter average of $11.75, or 11% less than now.

“The decline in prices in the second half of 2013 could be significant if weather conditions are near normal or even slightly unfavorable,” because output will jump, Goldman Sachs Group Inc. analysts said yesterday in an e-mailed report.

Worldwide soybean inventories will rise 19% to 74.04 million tons in the 12 months ending in September 2014, the biggest pre-harvest reserve ever, according to the average of 16 analyst estimates compiled by Bloomberg.

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