Brazilian drought drives up soy prices

Related tags Soybean

Food makers using soybeans suffered further price increases last
month as a worsening drought reduced production in Brazil.

In the US, soybean prices rose to around $1 a bushel in February 2005, the United States Department of Agriculture said this week.

This rise in prices provoked the forecasted 2004/05 average farm price up from $4.80-$5.40 to $5.05-$5.45 per bushel. Similarly, cash prices for soybean oil rose about 4 cents per pound and by the beginning of this month were near 23.5 cents per pound. This led to a half-cent increase in the forecast of the 2004/05 average price to 21.0-23.0 cents per pound.

The water shortage in Brazil led to a lower 2004/05 soybean yield forecast for the country this month, which cut the production estimate from 63 million to 59 million metric tons. This means experts have scaled back Brazil's export forecast by 1.2 million tons to 21.1 million with US sellers picking up more sales.

This - combined with a lower projected crop in Paraguay - meant global ending stocks were projected at 56 million tons, down from last month's estimate of 61.3 million but still well above the 2003/04 carry out of 37.5 million tons.

Weather concerns, strong demand and stronger US and Asian economic indicators were also responsible for rising prices of wheat and corn last month of 16 percent and 9 percent respectively.

Investment bank Goldman Sachs concluded that more price hikes were likely as "very low"​ global corn and wheat stocks make for highly exposed prices.

"We continue to believe that current inventory expectations suggest further upside for wheat prices,"​ said the bank in a report published earlier this month.

Food manufacturers and their ingredients suppliers have, in the last 18 months, witnessed a sharpening of margins brought about through exponential price rises for key raw materials.

Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications.

But in each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans to 30-year lows.

The double-digit price rises last month suggest the food industry is far from reaching a commodity comfort zone.

Related topics Ingredients

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