Soybean prices are too low to reflect the risk of setbacks
to South American crop supplies, Oil World said, amid revived ideas for the
potential for weather setbacks – and potentially the return of La Nina.
The influential analysis group sounded a bullish note on
prices of the oilseed, which rose 1.4% in Chicago, highlighting the low levels
of world inventories ahead of the start of the South American harvest next year.
At 49m tonnes at the start of calendar 2013, stocks will be
down some 30% year on year, leaving "hardly any cushion for crop damage".
"In our opinion the prices of soybeans and other oilseeds
are currently undervalued considering the production risks in South America and
the unusually small world stocks available at the beginning of 2013," Oil World
'Rapidly declining soil moisture'
The comments come amid a fresh bout of concerns about South
American weather, particularly over dryness in southern Brazil, where the state
of Parana has suffered a water deficit of 210mm-297mm (8.3-10.6 inches) over the last 90 days,
according to Martell Crop Projections.
Crop prices as of 18:00 UK time, (12:00 Chicago time)
Chicago wheat (December): $8.65 ¼ a bushel, +1.9%
Chicago soybeans (January): $14.46 ¼ a bushel, +1.5%
London wheat, (May): £227.00 a tonne, +1.5%
Chicago soyoil (December): 49.91 cents a pound, +1.3%
Paris wheat, (January): E273.25 a tonne, +1.3%
Chicago corn (December): $7.51 a bushel, +0.5%
"The southern one-third of Brazil continues to turn drier.
The trade is now concerned with the rapidly declining soil moisture levels," broker US
Michael Cordonnier, the crop scout, has flagged "speculation
that another drought may be on the verge of developing" in the southern
"The soils in many
areas of Parana now contain just 25% of their potential water holding capacity,
when normally this time of the year, the soils should contain 75% of their
potential water holding capacity", Dr Cordonnier said.
La Nina return?
And, as a further potential setback, there is some risk,
according to weather service Metsul, of the return early in 2013 of the La Nina
pattern, which was blamed for this year's poor South American harvest.
"If that occurred, it could result in deteriorating crop
prospects for southern Brazil because neutral conditions or a La Nina generally
increases the chances of dryer-than-normal weather in southern Brazil," Dr Cordonnier
In the US, Gail Martell at Martell Crop Projections raised the dryness setting back US winter wheat seedlings as potential evidence for the La Nina's return.
While the US Climate Prediction Center claims the important Enso air pressure measure is "neutral", America's "persistent drought suggests a La Nina influence may be in effect", she said.
Even if crops did meet expectations, Oil World cautioned
over the impact of poor infrastructure on holding back South American exports.
"The biggest problems are to be seen in the possibly too-low-pace
of soybean disposals caused by the bottlenecks in the domestic transport and
export facilities in Brazil and Argentina," the consultancy said.
Meanwhile, it also flagged the rationale behind a pick-up in
US soyoil exports over the last couple of weeks, which has surprised many analysts,
and left the country with its best weekly export sales performance in two
"US soyoil fob Gulf has become competitive relative to South
American origin," Oil World said, flagging the hangover to Argentine and Brazilian
crushers of poor 2012 output.
"Owing to insufficient supplies more and more crushers are
US soyoil is prices at about $1,100 a tonne, free on board,
undercutting just the $1,105 a tonne at which Argentine and Brazilian supplies
The US Department of Agriculture has, through its daily
reporting system, announced more than 150,000 tonnes of soyoil export sales
since the start of last week.