Record Soybeans Under Loan

U.S. soybeans outstanding in the 9-month loan program were 9.36 million tonnes as of January 20. This is the largest for this date since marketing loan provisions have been in effect and the largest since the 1985-86 marketing year. With cash soybean prices generally at a modest premium to the loan rate, farmers have been reluctant to sell soybeans and are significant users of the loan program. This has provided support to prices, spreads and basis levels that could be much lower given the overall supply situation.

Analysts expect that farmers likely will redeem and sell virtually all the loan soybeans as USDA probably will set the posted county prices (PCP) low enough to discourage forfeitures. Therefore, farmers would not borrow money to continue to store the crop. As a consequence, the market would then become extremely bearish as the farmer will not be dissuaded from marketing soybeans because the marketing loan gain earned on soybeans under loan would offset declines in cash prices.

December Crush Exceeds 2003 Level

The U.S. soybean crush totaled 4.09 million tonnes in December, an increase from the 3.97 million tonnes crushed in December 2003, according to the U.S. Census Bureau. Oil stocks totaled 585,000 tonnes, below the previous year’s 405,000 tonnes. The Census Bureau reported meal stocks at 246,000 tonnes, down from 255,000 tonnes in December 2003.

Chinese New Year Likely To Push Ocean Freight Rate Higher

A slowdown in dry bulk movements has caused average time charter values to plunge more than one-third to nearly $34,000 per day since its record high in early December. After the New Year, time charters did firm up on quick business but have since receded nearly 10 percent. Rates are down about one-fifth from the year ago level. Vessel owners and operators are confident that rates will firm up either ahead of China’s New Year that starts in early February or soon after it. If rates follow last year’s pattern, the owners then have every reason to believe rates will firm up. In the meanwhile the weaker rates will provide some momentum for U.S. exports that have been sluggish.

China And Brazil Resolve Export Issues

Chinese authorities accepted Brazilian documents that guarantee the safety of its genetically modified soybean exports, allowing trade to resume, said Niu Dun, China’s Vice Agriculture Minister. Dun said the Chinese government received the documents on January 13 and licenses to import Brazilian soy will now be issued. The Agriculture Ministry said it delayed sending drawing up the documents that vouch the exports offer no threat to humans or the environment until the official publication of a law that legalized the planting and sale of GMOs in Brazil this year.

Meanwhile, Brazil also has come to an agreement with China over the amount of specific solvents and fungicides allowed on soyoil. Brazilian exporters have been concerned about new regulations, which began in October 2004, that limit the amount of the solvent hexane allowed in soyoil to 100 parts per million (ppm), well below the industry standard of 600 ppm. Chinese authorities will continue to allow a maximum of 100 ppm of hexane in soyoil, however, the Chinese indicated that they will accept up to 600 ppm, which is the Brazilian limit. The Chinese government also said it is willing to accept up to 0.2 parts per million of the fungicide Carboxin in Brazilian soy shipments.

Traders Skeptical Of South American Soybean Contract

Dow Jones Newswires reports that traders are skeptical about a proposed South American soybean futures contract that would launch in the second quarter of 2005 at the Chicago Board of Trade. They say potential problems of liquidity and whether there is any need for the contract could doom it to failure.

Traders point out that the Sao Paulo Futures & Commodities Exchange previously tried on two occasions to get a Brazilian soybean futures contract up and running, with no success.

Brazil Infrastructure Problems

Brazil’s infrastructure and wealth inequalities pose barriers to long-term growth and the country need more investment in both areas, according to Pamela Cox, the head of the World Bank’s Latin America and the Caribbean areas. Reuters reports that the government’s relatively low infrastructure spending increases the cost of shipping goods via potholed roads and choked ports. It also reduces the competitiveness of exports, especially in the agricultural commodities that are driving Brazilian growth.

Japan’s 2004 Crush At Low Level

Japanese oilseed crushers reduced soybean crush volumes in 2004 to the lowest level in 25-years, as margins were squeezed by an influx of soybean meal and oil from overseas. According to data released last week by the Japanese agriculture ministry, soybean crushing volumes in 2004 dropped 14.8% in 2004 to 3.42 million tonnes, the lowest since 1979 when volumes totaled 3.4 million tonnes.

Reflecting the lower demand from crushers, Japanese soybean imports also dropped in 2004 to the lowest level in 13 years. Figures from the finance ministry show soybean imports dropped 14.7% compared to 2003 to 4.41 million tonnes – the lowest since 4.33 million tonnes in 1991.

Soy Complex Prices Decrease On Lower Than Expected Exports And Crush

The soy complex closed lower on January 27 reflecting weaker than expected export sales and December crush. While farmer selling in the U.S. may continue to be slow, that supportive influence on prices will decrease as import demand shifts to South America. Meanwhile, Brazil’s statistical agency (IBGE) raised their production forecast to 63.43 million tonnes, up 29% from last year.

March bean futures closed down $2.66 finishing at $189.50; May was $2.66 lower, closing at $188.86 and July lost $2.66 ending at $190.51. March meal was down $2.76, closing at $170.75; May was $2.54 lower, finishing at $170.31 and July decreased $2.76 to finish at $172.95. March oil closed $1.98 lower to finish at $428.35; May decreased $1.10, closing at $431.66; and July lost $0.66, ending at $435.19.