As I mentioned when writing about the 2010 Food Crisis, reading agricultural news stories in the US is a lot like having a lobotomy. On one hand you have the mainstream media reporting about record breaking crops, like last fall's soybean harvest shown below.
USDA claims 2009/10 saw a record US Soybean Crop
On the other hand, you have stories like the one below, where Delta Farm Press advises that farmers forget about last year.
Planting soybeans... forget last year
Mar 23, 2010 11:39 AM, By Elton Robinson, Farm Press Editorial Staff
As soybean producers get ready for the 2010 crop season, Mississippi Extension soybean specialist Trey Koger is offering these words of advice — forget what happened in 2009. [Farmers should forget about their record-breaking harvest? Why? This makes no sense (IF you believe USDA estimates)]
Koger, speaking at Mississippi Crop College at the Delta Research and Extension Center in Stoneville, Miss., said 2009 "was an asterisk, a blip on the radar. We had an extremely wet spring in April and May, followed by the driest June on record, followed by the wettest fall we've ever endured, with rainfall at 600 percent of normal in September and October, alone."
As a result of wet spring weather, 30 percent of the state's soybean crop was planted in April last season, compared to an average of 85 percent. "In 2009, we were planting soybeans as late as Aug. 4."
But in a year in which a lot of things were turned upside down by weather, many late-planted soybeans performed well. In fact, those Aug. 4 soybeans Koger referred to, which were planted in Natchez, Miss., cut about 32 bushels per acre.
Meanwhile, losses mounted in the early crop, to the tune of about $335 million in 2009, according to Koger. "I know of one case where around a million bushels of soybeans were sold for under $3 a bushel and placed in storage sheds. A little over 100,000 acres were never harvested because the quality was so poor."
[See *****Worst Harvest Season Ever Seen***** for more on last year's horrible crop season]
USDA estimates match demand, not reality
It isn't just production that is breaking record. According to the USDA, demand is surging too. Delta Farm Press reports that China is on track to import a record 45 million tons of soybeans from the United States.
Chinese drought limits oilseed output
Mar 31, 2010 10:18 AM, By Ray Nabors, Heartland Ag Network
Bullish news: The drought in southern China reduced rapeseed production about 500,000 tons. Soy oil stocks were 3.293 billion pounds, well below trade estimates. China took delivery on 283,900 tons of United States shipments, which is 8.7 million bushels. China is on track to import a record 45 million tons of soybeans from the United States. Soybean export inspections are up 12 percent for the year.
The chart below compares USDA 2009/10 estimates for Chinese soybean imports against US soybean production.
Isn't it amazing that, just as Chinese soybean demand has surged, so has US crop production? Conveniently, the USDA keeps predicting record breaking harvests to meet record breaking demand.
This isn't an accident. The phenomenon of the USDA raising production estimates to meet demand forms the basis of the dynamics behind 2010 Food Crisis.
Dynamics behind 2010 Food Crisis
Early in 2009, the supply and demand in agricultural markets went badly out of balance. The world was experiencing a catastrophic fall in food production as a result of the financial crisis (low commodity prices and lack of credit) and adverse weather on a global scale. Meanwhile, China and other Asian exporters, in effort to preserve their economic growth, were unleashing domestic consumption long constrained by inflation fears, and demand for raw materials, especially food staples, was exploding as Chinese consumers worked their way towards American-style overconsumption, prodded on by a flood of cheap credit and easy loans from the government.
Normally, food prices should have already shot higher months ago, leading to lower food consumption and bringing the global food supply/demand situation back into balance. This never happened, because the USDA, instead of adjusting production estimates down to reflect decreased production, has been adjusting estimates upwards to match increasing demand from china. In this way, the USDA has brought supply and demand back into balance (on paper) and temporarily delayed a rise in food prices by ensuring a catastrophe in 2010.
Overconsumption is leading to disaster
It is absolutely key to understand that the production of agricultural goods is a fixed, once a year cycle (or twice a year in the case of double crops). The wheat, corn, soybeans and other food staples are harvested in the fall/spring and then that is it for production. It doesn't matter how high prices go or how desperate people get, no new supply can be brought online until the next harvest at the earliest. The supply must last until the next harvest, which is why it is critical that food is correctly priced to avoid overconsumption, otherwise food shortages will occur.
The USDA, by manufacturing the data needed to keep supply and demand in balance, has ensured that agricultural commodities are incorrectly priced, which has lead to overconsumption and has guaranteed disaster next year when supplies run out.
As seen below, the USDA has been continually raising estimates for global 2009/10 soybean production by around 2 MMT per month to meet demand.
USDA predicting record South American crops
The latest example of the USDA adjusting production numbers upwards can be seen in its estimates for South America's soybean crop. Ag Weekly reports that the USDA April supply/demand report.
THE APRIL SUPPLY/DEMAND REPORT
by Brian Hoops
Monday, April 12, 2010 8:20 AM CDT
In world supplies, the USDA increased production estimates of soybean crops from Brazil and Argentina, the world's No. 2 and No. 3 producers, but said strong demand from China will help consume the bumper crops. Soybean production in No. 2 producer Brazil was projected at 67.5 million tonnes, up 0.5 million tonnes, and Argentine soy production was raised 1 million tonnes from last month to 54 million tonnes.
The USDA is forecasting South American soybeans to compete against U.S. soy exports for the rest of the marketing year as their harvest advances, however, the USDA still raised its export forecast for the United States.
China, the top soy importer, was forecast to buy 43.5 million tonnes of soybeans this year, up from 41.1 million tonnes last year, and 2.3 percent above last month's estimate, the USDA said.
Brazilian exports were raised 2.7 percent from last month to 26.3million tonnes, but exports from Argentina were unchanged from last month at 7 million tonnes.
The chart below show the USDA's increasing estimates for South American soybean production.
Reality about the South American Harvest
Nogger reports that Brazilian Soybean Crop 'Not As Good As Advertised'.
Monday, 29 March 2010
Brazilian Soybean Crop 'Not As Good As Advertised'
I read with interest today on the excellent Brownfield Ag Network website that Bob Streit, a crop consultant with Central Iowa Agronomics returning from a recent visit to Brazil, says that crops there "look good — but perhaps not quite as good as advertised."
Wet weather seems to have delayed plantings and led to increased rust incidences, taking the top off yields a bit. Read the full story of what he has to say here.
That ties in with what private Brazilian consultant Kory Melby has been saying for months now. Whilst talk of 68 MMT of soybeans makes good press "it is only a matter of time before we hear talk of a smaller soybean crop in Brazil."
Even so of course, if we are talking 64 MMT or 68 MMT - or somewhere in between - it's still a record. Ditto Argentina at 50 MMT, 51.5 MMT or 53 MMT? That said, the bigger numbers towards the upper end of those ranges are already in the marketplace so maybe something closer to 64 MMT and 50 MMT is modestly bullish?
I still subscribe to the notion that logistics and physical availability (or lack of it) will be more important than ever this summer. US stocks are tight, the USDA will reveal just how tight on Wednesday. Consumers have left themselves short in the confident knowledge that massive crops were coming from South America.
There's just one problem, those massive crops ARE still in South America, and that isn't much use if you need soymeal in Europe tomorrow is it?
Kory Melby reports on his blog that the Brazil soybean crop is shrinking, not getting bigger.
USDA gave us another sobering report. We have plenty of everything.
7 April 10
We keep hearing reports that Brazil soybean crop is getting bigger. I don't think so. But at this point with massive soybean and corn supplies coming out of South America, I don't think it much matters if Brazil crop is 65 MMT or 67/68MMT. Whatever the final numbers are, I will lean towards the lower end and even subtract a little bit from that. There is too much political finessing in the air. They want to keep talking big numbers. It makes it look like progress.
7 April 10
I just sent out a flash update to subscribers about the April CONAB report:
"Soy crop shrinks 200,000 tons from March Report"
I have been telling subscribers for 60 days that the crop is shrinking; not getting bigger.
The USDA is overstating the South American soybean harvest by at least 7 MMT.
Latest USDA propaganda: another record US harvest predicted
The USDA's propaganda against agricultural commodities is in full swing. Although next fall's harvest is five months away, already the mainstream media is filled with headlines about record 2010/11 US soybean harvest:
USDA: Soybean crop will hit record high in 2010 (AP)
US Farmers Plan a Record Soybean Planting (NYT)
USDA: Higher yields will bring food prices down in 2010 (KTIV)
US Soybean Stocks Number Rattles the Market (Hoosier Ag Today)
Record soybean harvest forecast (The State Journal-Register)
The reality: a tight cash market
USDA predictions of never ending record harvests has created a very tight cash market. Everyone is waiting for prices to crash (which would already have happened if USDA estimates were accurate).
The Economic Times reports that soybeans prices are firm on tight cash markets.
Soy firms on tight cash markets
Wednesday April 07, 2010 04:27:16 AM GMT
By Mark Weinraub
Soybeans edged higher in choppy trading due to tight cash markets. Farmers have been reluctant sellers of soybeans as prices have fallen during the past few weeks, leaving some processors and elevators looking for supplies.
Farmers in South America also were not rushing to sell newly harvested crops of soybeans due to thin profit margins.
"These may look like good soybean prices to you but they are not to some farmer in the hinterlands in Brazil or Argentina. These aren't good prices for him and he isn't selling," a CBOT floor trader said.
Forex Yard reports that supplies of old-crop U.S. soybeans are tight.
Supplies of old-crop U.S. soybeans are already tight, despite a record 2009 harvest, following months of strong export demand from China. The U.S. Department of Agriculture on Wednesday will issue a quarterly report on grain stocks, and traders expect a big drawdown in soy supplies from last year.
Meanwhile, U.S. farmers sold much of their 2009 harvest last fall and winter, and have been reluctant to sell the rest unless they see a jump in prices.
The resulting lack of soybeans in the U.S. supply pipeline has kept cash basis levels relatively resilient and helped underpin CBOT soy futures despite the expanding bumper South American harvest.
"There is a fairly strong history of bean markets, even in good crop years, to rally in the summer," Feltes said.
Conclusion: The supply/demand in agricultural markets is critically out of balance. At the current rate of consumption, the US will run out of soybeans around June, three months before the fall harvest.
The soybean cash market will continue to tighten driving up prices, culminating in panic this summer. The summer shortage should drive soybean prices well over the $20 a bushel, twice their current price. (see The Great Grain Robbery for an example of what happens when supply and demand get thrown out of order in grain markets)