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U.S. feedmakers hoard soybeans as supplies dwindle

Soaring global demand for soybeans forced U.S. animal feed makers to hoard supplies this fall due to the fierce competition for their main ingredient, with some even turning to floating storage on river barges to thwart sales to exporters.

The renewed demand pushed soybean prices to a four-year high, a marked change for farmers who are looking at their best season in years as they also received record subsidies from the U.S. government and China resumed buying large volumes of crops after a bitter trade dispute.

The diminishing supply base could provide more fuel to the recent price rally and entice farmers to plant more acres of soybeans in 2021 to satisfy the burgeoning demand. Meanwhile, meat producers may pass on higher feed costs to consumers already facing food inflation worldwide.

U.S. farmers had struggled during a four-year supply glut and particularly during the China trade war, with prices languishing at unprofitable levels and forcing them to build new sheds to store unsold crops on their farms for months at a time.

But this year, a worsening COVID-19 pandemic has encouraged soy buyers worldwide to build stocks of food due to concerns additional lockdown measures could result in shortages. That left U.S. buyers scrambling for places to put their soybeans that they had to purchase on the cash market or watch them be gobbled up by competitors.

Meanwhile, prospects for soy supply shortages globally are increasing due to concerns about a diminished harvest in top exporter Brazil, where parched soils in key growing areas delayed soy planting.

Kentucky’s Owensboro Grain held soybeans on barges during the peak of harvest, a costly move due to charges for tying up the vessels next to its processing plant. But the floating storage was only a temporary solution as the quality of soybeans can quickly deteriorate if left in the open air.

“We cannot hold them too long out there,” said Ronnie Edge, marketing manager. “We will do just enough to get us through to the next week.”

The amount of soybeans processors crushed for animal feed surged to a record high in October, according to data released in November, topping all trade estimates as demand for products made from soymeal and soy oil peaked.

The domestic crushers have stiff competition for the beans from exporters at the U.S. Gulf. Top buyer China already has committed to buy 29.67 million tonnes of U.S. soybeans this marketing year, more than three times as much as the 9.61 million tonnes in commitments made at the end of November 2019.

U.S. farmers had already sold 80% of the 4.17 billion-bushel soybean crop by the time harvest wrapped up in November, according to Charlie Sernatinger, global head of grain futures at ED&F Man Capital.

During the previous 20 years, farmers typically were still holding about 38% of the soybeans they had just harvested in their storage bins on Dec. 1, according to U.S. Agriculture Department data.

“We won’t have many beans come January,” Sernatinger said.

A Louis Dreyfus crushing plant in Claypool, Indiana, was lucky to finish an expansion of its facility that doubled its crop storage capacity – to 12 million bushels – just ahead of the harvest, a dealer said.

The new capacity allowed it to accept the flood of soybeans from farmers eager to deliver straight from the fields rather than putting them in their own storage bins or paying to store them in commercial elevators that hold on to crops and re-sell them to end users or exporters.

ARGENTINA SHORT OF SUPPLIES

The tightening of supplies comes even though farmers harvested the fourth-biggest U.S. soy crop on record. USDA already has cut its outlook for ending stocks – which is how much is left in storage bins before the next crop is harvested and reflects demand trends – in three straight monthly reports.

The government’s latest projection, issued in November, predicted that domestic soy supplies would dwindle to a seven-year low of 190 million bushels by the end of the marketing year in August and most analysts were expecting further reductions in that outlook.

Export demand for U.S. soymeal as well as soybeans has been strong, as farmers in Argentina, typically the world’s biggest shipper of the animal feed, have been reluctant to sell their soybeans to local crushing plants due to currency weakness.

Argentina has been stuck in a recession since 2018, and the COVID-19 pandemic, high inflation and foreign exchange uncertainty have complicated prospects for an economic recovery.

That has left Argentine crushers short of supplies. According to data from the Argentine Ministry of Agriculture, up to Nov. 25, sales of soybeans from 2019/20 crop from farmers to exporters and crushers totaled 35.9 million tonnes, down 13.5% from a year earlier. Argentine soymeal exports were down 14.3%.

U.S. farmers were the exact opposite – eager to sell after so many years of low demand. In Minnesota, grain merchants had to raise the prices they were offering for soybeans delivered in December or January to stem the tide of crops rushing in to terminals at harvest, effectively paying farmers to store their own soybeans for a couple of months.

“Our deferred prices were enticing enough to have guys store that stuff coming off of the fields,” a Minnesota soy dealer said.
Source: Reuters (Reporting by Mark Weinraub in Chicago Additional reporting by Christopher Walljasper in Chicago and Hugh Bronstein and Maximilian Heath in Buenos Aires Editing by Caroline Stauffer and Matthew Lewis)

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