Shrinking Soybean Supplies Send Futures Higher

June 13th, 2012

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Category: Oilseeds

(WSJ) – Soybean futures rose 0.7% on Tuesday, as the government cut its forecasts for U.S. supplies and traders worried that dry weather could hinder development of Midwest soy crops.

The U.S. Department of Agriculture, in a monthly supply-and-demand report, forecast tighter soy inventories due to stronger demand from domestic users and from China.

The report highlights the shifting focus of the soybean market. Futures rose earlier this year on shrinking forecasts for soybean production in drought-stricken Brazil and Argentina. Analysts expected the shortfall to boost export demand for U.S. soybeans.

U.S. soybean supplies are shrinking.

But with the harvest in South America complete and the U.S. growing season under way, soybean traders are focusing on domestic weather forecasts in an effort to divine the crop’s likely yield at harvest.

“We’re starting to get late enough in the growing season where all the focus is more on weather,” said Chad Henderson, president of Prime Agricultural Consultants Inc., a commodity brokerage in Brookfield, Wis.

The USDA on Tuesday forecast domestic soybean inventories as of Aug. 31, the end of the current marketing year, at 175 million bushels, down 17% from its previous forecast.

The cut was due partly to strengthening export demand, especially from China, the world’s largest importer of soybeans, the USDA said. It also was a result of a higher USDA forecast for domestic soybean processing—known as crushing—to satisfy demand for soybean meal, a key ingredient in animal feed.

The USDA also cut its forecast for inventories at the end of the next marketing year by 3%, to 140 million bushels.

Those forecasts boosted futures prices. “They reinforced the fact that global stocks are tight and expected to stay tight into next year,” said Arlan Suderman, an analyst in Wichita, Kan., for Farm Futures.

Soybean futures for July delivery settled up 10.25 cents at $14.35 a bushel at the Chicago Board of Trade. November soybeans rose 5.75 cents, or 0.4%, to $13.37 a bushel.

Also Tuesday, traders had their first chance to make deals the instant that the government released its supply-and-demand report. But the report lacked enough market-moving data to fill the new trading opportunity.

“By 7:35 [a.m.], after the numbers were out, it was over,” said Scott Shellady, a derivatives manager with Trean Financial.

—Leslie Josephs and Ian Berry contributed to this article.

Write to Owen Fletcher at owen.fletcher@dowjones.com and Bill Tomson at bill.tomson@dowjones.com

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