SocGen forecasts sharp drop in soybean prices


Societe Generale maintained its bearish position on soybean price prospects, despite the recent demand-led rally, as it flagged the size of the US harvest, and downplayed any crop threat from La Nina in South America.

The bank doubted that "slightly stronger demand for soybean in the near term" will offset the "exceptional yields" in the US harvest.

The bank forecast prices to fall by almost $1 a bushel in the near term, under pressure from the ample US harvest.

And the bank forecast the US Department of Agriculture to increase its estimate of the US soybean crop, following heavy yield reports.

No La Nina threat

Prospects for the next soybean harvest in Latin America look strong as well, Societe Generale said.

"We expect weather in the Latin America region to remain favourable for crops amid falling prospects of La Nina," the bank said.

Markets have been jittery over the possibility that the strong 2015-16 El Nino effect could swing into a La Nina, bringing dry weather to the Americas.

And indeed, the soybean and corn planting season in Latin America got off to a slightly dry start this season.

But Societe Generale said the pattern "continues to play hide-and-seek," with only two out of eight main weather models pointing to the development of a "brief and weak" El Nino.

Such a development would be "unlikely to have a major impact on Latin American crops," the bank said.

No repeat of strong exports

Soybean prices have benefited from higher global vegetable oil prices Societe Generale said.

"As expected, China also accelerated soybean purchases from the US amid lack of supply from the Latin America region," bank added.

But exports were seen as "unlikely to repeat," their very strong performance over the summer.

And production in China is set to rise, Societe Generale said.

"As a result of stronger soybean prices and the withdrawal of price support system for corn in China, soybean prices in China have become significantly more attractive for Chinese farmers."

In particular, the soybean to corn price ratio, which is a key driver for sowing intentions, is now above 2.5, a strong signal to plant soybeans.

Long term bearish outlook

The bank expects prices to fall to below $9.00 a bushel over the last three months of 2016. November soybean futures in Chicago are currently trading at just under $9.98 a bushel.

And the bank's outlook only gets more bearish from there, with prices seen falling to just $8.47 in July to September 2017.

Apart from one session in November 2015, front-month soybean futures have not fallen below $8.47 since 2009.

In comparison, August 2017 soybean futures are currently trading at $10.28 a bushel.


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