The U.S. soybean-corn ratio has declined sharply for the
past five months - especially for the March 2007 contract. However, farmers tend to look at the new crop ratio, but it still is trending higher with the advantage of corn plantings.
President Bush's request to cut fuel usage by 20 percent during the next 10 years via a 75 percent reduction in imports and increasing production of ethanol and biodiesel to 35 billion gallons - up five times the current levels - leaves me thinking Bush will not cut incentives during the duration of his time left in office. This should put more enthusiasm into building new ethanol and biodiesel plants.
In Argentina, the latest government decisions are to not encourage farmers there to expand ag production. As of Jan. 15, export taxes on soybeans and corn were raised to 27.5 percent, up from 23.5 percent. Soy products each were raised 4 percent to 20 percent. This means lower incomes for farmers. Remember, Argentina is the world's No. 2 exporter of corn. The U.S. is No. 1, China is No. 3, and South Africa is No. 4. Argerntina's rate of inflation is estimated to be 6 percent.
Because of good weather during the past two weeks, soybean crop estimates are being estimated higher than last year. But too much rain is not good. My sources tell me that Mato Grosso is looking good, but Parana is suffering. Mato Grosso is No. 1 producer, and other sources are indicating the reverse. Torrential rains have been occurring in Bolivia and Paraguay.
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In Argentina, the northern regions are experiencing planting delays because of recent heavy rains, while La Pampa has turned fairly dry since the first of the year, Arroyos and Bahia Blanca are noting early harvesting yields below expectations for sunflowers. Exports for soybeans were up 21 percent during December.
While Australia has caught some rain recently in wheat country, drought remains in many other areas. Summer crops, primarily soybeans, are seeing production issues and yields are being slashed. Imports to Australia in October to December 2006 were up 40 percent from year earlier. I must also note the poor quality of soybeans in 2004 and 2005 and the near record poor quality in protein in 2006. This should be leading to a disappearance that will show up in future reports as revisions. While Dec. 1 stocks of 2.697 billion bushels are up 196 million bushels from last year, and record high, I think we have looked at the highest number we will see.
So old news? Oilseed demand is growing faster worldwide than the U.S. can produce. In both corn and soybeans, there remains little room for error. At present, I look for soybean acreage to be down by 8.6 percent from last year. That should give a number close to 69 million acres. This year, we note that rapeseed and canola gain acres vs. other oilseeds loosing acres. We need to keep an eye on Europeon weather during the next month as their rapeseed crop could be in trouble if hit with freezing temperatures, and that is the current forecast.
While soybean prices whip from day to day, I still anticipate a lead month to exceed the 752 high of 2005 and ultimately, attack the $8 plus area.
