Soybean Prices May Extend Drop on Higher Output, Slower Demand From China

(Bloomberg) – Soybean prices may be poised to extend declines as supply increases from South America and demand growth may slow from China, the largest consumer.

Soybeans have “room to fall” below $11.50 a bushel in the long term, said James Zhou, director of trading, Cargill Investment (China) Ltd. Prices are still relatively high, enough to sustain planting interest, so output may increase, Zhou said yesterday at a conference in Guangzhou, China. Soybeans traded at $11.755 on Nov. 11.

Prices in Chicago have dropped 16 percent this year on larger crops in Brazil and Argentina, the biggest producers after the U.S., and concern the European debt crisis may curb global economic growth. Soybean imports may drop this year for the first time since 2004, the China National Grain & Oils Information Center said Nov. 11. Goldman Sachs Group Inc. last week reduced its forecast for soybeans on rising supplies.

China’s “huge demand” for commodities may have reached a “major turning point,” and the growth of imports in the next three-to-five years may slow along with its economic expansion, said Fei Zhonghai, vice president of COFCO Ltd.,the country’s largest grains trader.

Soybean prices may decline to $9 a bushel or even lower as “we are entering bearish phases of the price cycles for soybeans, soybean oil and soybean meal,” which may last one to two years, said Anne Frick, a senior oilseed analyst at Jefferies Bache LLC. The key bearish factor is the economy, as well as trade protectionism and changes in biofuel policies, Frick said at the conference.

Soybean oil may drop to 34 cents per pound and soybean meal may slump to $260 per ton, Frick said. Goldman Sachs lowered its soybean forecast to $12.20 a bushel during the next three months and to $12.50 in six months, down from $12.60 and $13.

China Imports

China’s soybean imports, which account for more than half of the globally traded volume, have dropped by 5.4 percent in the first 10 months to 41.52 million tons, according to customs data. The soybean crushing industry is becoming less profitable as growth in production capacity exceeds demand, said COFCO’s Fei.

Soybeans on the Chicago Board of Trade have dropped 20 percent from a three-year high of $14.65 a bushel on Aug. 31, and are poised for the first decline in three years. December- delivery soybean oil closed at 50.98 cents a pound on Nov. 11 and meal ended at $299.50 a ton.

The soybean complex is “very bearish” because of the large U.S. inventory, increasing dominance of South American supplies, and “very flat” import growth in China, said Emily French, managing director at ConsiliAgra. The company is a Chicago-based grain and oilseed consultant and brokerage.

‘More Bullish’

Not everyone is predicting a slowdown in Chinese demand. Imports of oilseeds and vegetable oils may be “much higher” in 2012 than this year, said Dorab Mistry, director of Godrej International Ltd.

China’s importing for state reserve replenishment is “more bullish” on the market than commercial buying for consumption because it takes available supply out of the market, said Mistry, who spoke at the conference. “The worldwide supply and demand for soybeans and for soya oil are quite tight and if there is a weather problem, all bets will be off.”

Imports by China may climb as much as 22 percent as its surging appetite for meat fuels a “tremendous” increase in demand for pig feed, Thomas Daetwyler, head of Noble Group Ltd.’s Asia-Pacific grains and oilseeds division, said Oct. 19.

American farmers will produce a three-year low of 82.9 million tons in the harvest that ends this month, down 8.5 percent from 2010, the U.S. Department of Agriculture said Nov. 9.

Still, purchases by China’s state reserves won’t have lasting impact on prices because they are just re-allocation of inventories and not incremental consumption, said ConsiliAgra’s French.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net