In the 60 years that Ursa Farmers Cooperative has been loading Midwest soybeans onto boats along the Mississippi River, business has never been this good.
Barge convoys are heading south along the world’s busiest inland waterway to New Orleans export depots at a record pace as demand surges from pig farmers in China, the largest pork-eating country. Soy stockpiles in the U.S., where farmers harvested the third-largest crop ever just six months ago, are the lowest relative to demand in at least five decades, fueling the second-biggest rally in prices to start the year since 2005.
“Our soybean supplies will be empty by the end of April,” said Scott Meyer, grain department manager at the Ursa, Ill.-based terminal owner, which loads about 35 million bushels of crops annually. “Chinese demand for soybeans was a lot stronger than everyone expected this year.”
The sales jump is raising profit margins for processors including Bunge Ltd. and Archer-Daniels-Midland Co. even as costs rise for buyers including Michael Foods Inc. Goldman Sachs Group Inc. raised its six-month price outlook for soybeans on March 11, predicting “near critically low” supplies before the 2014 harvest.
Soybean futures rallied 12 percent this year to $14.4775 a bushel Thursday on the Chicago Board of Trade, touching a nine-month high of $14.60 on March 7. Corn and wheat have rallied 15 percent.
Soybean reserves are at the lowest point for this time of year since at least 1965, U.S. Department of Agriculture data show.
U.S. farmers harvested about 3.28 billion bushels of soybeans in 2013, up from about 3 billion bushels in 2012, according to an estimate by the USDA. Arkansas farmers produced 141 million bushels of soybeans last year, up from 135 million bushels in 2012.
Since Sept. 1, shipments of U.S. soybeans climbed to 39.7 million tons, up 22 percent from a year earlier and almost reaching the government forecast for 41.64 million tons for the entire 12 months ending Aug. 31, according to the USDA. Two-thirds of those shipments ended up in China, the biggest buyer, with exports reaching 26.494 million tons, topping the previous record of 24.464 million tons three years earlier.
Pork production has surged 38 percent in China since 2000, now accounting for more than half of global output, as the nation’s expanding economy increased incomes and people were able to afford to eat more protein. To feed the world’s largest hog herd, livestock producers import U.S. soybeans that were as much as $7 a bushel cheaper than Chinese supplies in January, based on cash prices in the Gulf of Mexico.
“Chinese demand for U.S. beans was so strong, so early that it simply depleted supply,” said Randy Mittelstaedt, the director of research for R.J. O’Brien & Associates in Chicago. Compounding the inventory drain was better-than-expected demand from Europe, hoarding of supply by Argentine farmers and a smaller crop in India, he said.
Soybeans may reach $16 “by July, when we essentially run out of domestic supplies and everyone is fighting to get the last bushel,” Mittelstaedt said.
The rally may not last. China will start canceling orders because it purchased more soybeans than it can use, and U.S. farmers are preparing to sow a record crop in 2014, according to Rabobank International, which predicted on March 20 that prices will slide to $12.40 in the second quarter before ending the year at $11.60. Soybean futures for delivery in November, after this year’s U.S. harvest, closed Wednesday in Chicago at $11.9325.
China’s stockpiling this year was a preventive move in case there was a repeat of last year’s shipping delays from top exporter Brazil, where Southern Hemisphere crops are harvested from March to May, Rabobank analysts including Luke Chandler said in the report.
“The soybean stocks estimate this year may be more important than is normally the case due to the rapid pace of U.S. exports, concerns about the size of the South American harvest, and prospects for generally tight stocks at the end of the marketing year,” said Darrel Good, an agricultural economist at the University of Illinois in Champaign-Urbana. “Prices will stay elevated longer until there is evidence that demand is slowing relative to available supplies.”
The rally in grain and oilseed prices has been a boon to processors, including White Plains, N.Y.-based Bunge and Decatur, Ill.-based ADM.
Demand for animal feed, including soybean meal, from U.S. livestock producers has risen as prices for cattle, hogs, milk and cheese rose to records this month.
“Margins over the past five months are the best, sustained period of profitability ever,” said Roger Fray, the executive vice president at farmer-owned grain handler and soybean processor West Central Cooperative in Ralston, Iowa.
“We are so far above fixed and variable costs that we will continue to crush until there are no more soybeans left.”
Business, Pages 25 on 03/28/2014