Huge US soya supply could mean further price drops

By Joanna Levin

THE American soya bean harvest is well under way now, and futures prices are buffeted by frequent updates on harvest progress and weather conditions for the bean farmers.

With good weather conditions and low rainfall this season producers have already harvested 20% of their crop, compared with 8% at this time in 1997 and a five-year average of 9%.

With production expected to hit a record 2.91 billion bushels, up 7% from the record of 2.73 billion bushels seen last year, market analysts are worrying about the effect that this huge supply will have on prices. Soya bean prices have already dropped 40% since Spring 1997.

Farmers are currently receiving subsidies in the form of Loan Deficiency Payments from the Government. Under the programme, producers receive a payment, estimated at 50¢/bushel in some areas. However, they continue to hold on to their crop as they are still responsible for selling the soya beans into the marketplace.

With the LDPs, producers can now afford to sit back and wait before they sell their crop. But there is the risk that they will all bring their grain on to the market simultaneously at any sign of further price drops. This in turn would create a second market fall.

The Chicago November soya bean futures contract closed on Tuesday, 29 September at 527.25¢/bushel, down from 532.25¢ on Monday, 28 September but up slightly from 525.25¢/bushel on Wednesday, 23 September.