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Would U.S. embargo soybeans?
By Mike McGinnis
DTN Commodities Editor
DES MOINES (DTN)--The "E" word--embargo--raised its head during December's second week in relation to soybeans, but most market analysts say it was much ado about nothing.
When a reporter asked U.S. Secretary of Agriculture Ann Veneman if the administration would consider a soybean embargo if supplies got too tight, Veneman answered that, no matter how tight supplies get, the U.S. under no circumstances would embargo soybeans. Because Veneman was simply responding to a direct question, and didn't bring up a possible embargo herself, analysts viewed it as almost a non-event.
"Outside of wheat, embargoes haven't even been talked about for a long time. They are politically unpopular," Lester Bartell, risk manager for ag advisory firm Stewart Peterson, told DTN.
Bartell added, "An embargo would be detrimental to prices. Plus, with all the effort to comply with global trade rules, the world trade ramifications would be harsh."
However, Bartell was quick to point out that because of the volatility of the international market, perhaps Veneman shouldn't say never about an embargo.
Talk of an embargo on soybeans comes up as USDA kept its estimate for 2003-2004 ending soybean stocks at 125 million bushels on the Dec. 11 supply/demand report. That is only a three-week supply.
In addition, China's appetite for U.S. soybean remains strong. China is expected to buy 8 million metric tons of soybeans from the U.S. this year.
Mid December, a delegation of Chinese soybean buyers is expected to announce a large purchase from the U.S. when it visits Chicago. OsterDowJones reported Chinese television said the delegates will sign contracts to purchase 1.5 million metric tons of soybeans.
"China is the 800-pound Gorilla here," said Don Roose, of U.S. Commodities, West Des Moines, Iowa. "I think the Chinese buying pattern will dictate U.S. soybean supply."
Roose said he understood Veneman's response when she was asked about a possible soybean embargo. "What the government is saying is that the U.S. is a reliable supplier of soybeans regardless of how tight the supply is," Roose said. "We are trying to tell customers that we are stabilizing demand."
He added, "I believe if the situation came up, we may have to do what China has done and that's both import and export soybeans."
Meanwhile, rationing of U.S. soybeans is not considered likely to happen until the price goes higher.
"The price isn't high enough to ration," said Bartell. "When soy crushers can't acquire beans is when we will be rationing."
In addition, Bartell said based on favorable conditions in South America and the U.S. getting needed moisture for next spring's planting season, factors for rationing don't add up.
Roose agreed, but cited different reasons.
"USDA is saying ending stocks will not change, and the short-term price is fine due to South America taking over the 'supply' torch in a few months because we don't have the supply," said Roose.
Furthermore, Roose sees U.S. soy crush and exports slowing because South America is taking over the supply baton.
"If that doesn't take place, soymeal or soybeans will have to come into the U.S.," said Roose.
Meanwhile, USDA is projecting an average farm price range of $6.85 to $7.65 per bushel for the 2003/2004 crop year. The midpoint of this range, $7.25, would be the highest average farm-gate soybean price since the late 1990s when stockpiles were low.
Bartell said with soybean prices near $8.00 per bushel, the $9.00 price level talked about by some analysts is really not that far off. "If demand for oil stays high, prices could go anywhere. If meal becomes the leader, you would see livestock liquidation and other protein limitations," said Bartell. "Although there are high fat cattle prices, it's hogs and chickens that eat more soymeal."
Roose said right now the market is saying January beans are high enough around the $7.80 level.
Date: 1/8/04
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