Soy reserves smallest in four decades after drought

• Soybean inventory

Farmer Matt Wiggeim is seen applying insecticide on a soybean field outside of Walnut, Ill., in July. The smallest U.S. soybean harvest in nine years will leave inventories in the world’s largest exporting nation at the lowest in four decades. (Bloomberg News photo by Daniel Acker)

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CHICAGO — The smallest U.S. soybean harvest in nine years will leave inventories in the world’s largest exporting nation at the lowest in four decades.

U.S. farmers will reap 13 percent less than a year earlier after the worst Midwest drought in 76 years, according to the average of 34 analyst estimates compiled by Bloomberg. Reserves will be the lowest since 1973 by March, estimates INTL FCStone Inc., which handled $75 billion of physical commodities in 2011. Futures will advance 17 percent to an all-time high of $20 a bushel in three months, Goldman Sachs predicts.

Crop prices surged to records this year as drought parched fields across the United States, South America and Russia. The U.S. Department of Agriculture cut its forecasts the past two months and the Bloomberg survey indicates the agency will do so again tomorrow, leaving Brazil as the top soybean supplier for the first time. Feed costs are rising for meat producers including Tyson Foods Inc., the largest in the U.S., and three United Nations agencies said Sept. 4 that swift action is needed to avert a food crisis.

“The U.S. will simply run out of soybeans” for exports on March 1, said Doug Jackson, an FCStone vice president in West Des Moines, Iowa, who has been a grain-industry analyst since 1974. “The supply situation is unprecedented. The theoretical maximum South American shipping capacity may fall short, leaving world buyers wanting.”

Soybean futures through Monday jumped 42 percent to $17.1875 this year on the Chicago Board of Trade, and soybean meal, used in livestock feed, surged 66 percent to $519.40 per 2,000 pounds (0.91 metric ton). The Standard & Poor’s GSCI Agricultural Index of eight commodities advanced 17 percent as corn rose 21 percent and wheat 36 percent. The MSCI All-Country World Index of equities gained 9.9 percent, and a Bank of America Corp. index shows Treasuries returned 2 percent.

The USDA forecast Aug. 10 that global soybean production will increase 10 percent to 260.5 million tons in the year that begins Oct. 1, compared with demand of 256.9 million tons. The agency projected a 2.8 percent gain in stockpiles to 53.4 million tons. Prices advanced 4.5 percent since then and research companies including Hamburg-based Oil World reduced their predictions for supply as conditions worsened.

Only 32 percent of the U.S. soybean crop was deemed by the USDA to be in good or excellent condition as of Sept. 9, compared with a five-year average of 60 percent. Based on temperature and rainfall in June and July, the Midwest drought is the most severe since 1936, according to T-Storm Weather, a Chicago-based forecaster.

Hedge funds and other speculators have increased bets on higher prices 10-fold this year, data from the U.S. Commodity Futures Trading Commission show.

The state of the U.S. crop is critical to global prices because it accounted for an average of 45 percent of all shipments over the past decade, USDA data show. That’s down from 63 percent in the previous 10 years as South American farmers expanded production.

Brazil will send 38.5 million tons overseas next marketing year, nine times more than in 1993, the USDA said last month. Its output will jump 23 percent to 82 million tons, exceeding the U.S. for the first time, according to Oil World. That compares with U.S. output of 72.4 million tons predicted in the Bloomberg survey.

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