March and July soybeans have spent a good part of 2009 around the $10 mark. November beans were above $10 for a brief time in early January, and have faded lower. But since the futures contracts have come off their highs, more information has become known about the South American drought that may reduce soybean yields in Argentina, Paraguay and in Southern Brazil. Is this a time to sell or hold soybeans, or is it a time to pay more attention to the weather-driven market?

USDA’s Oil Crops Outlook for February, released on Wednesday, focused on the lack of rainfall in South America and the impact it was having on US soybean exports. And farmers with unpriced soybeans are watching for marketing opportunities. USDA economists are raising their export forecast because of the strong demand from foreign buyers. Marketing year exports could reach 1.15 billion bushels while the domestic demand is expected to weaken.

Soybean prices will be up and down this year, as they are every year, but the successful marketer will consider the timing of the market dynamics. USDA analysts expect the poor crops in South America will cause producers there to store their soybeans and wait for better prices. However, the global soybean demand expected to be supplied in the next couple months from South American ports. In the absence of available supplies from South America, they are increasing their purchases from the US, and could match last year’s record.

While the export market is on fire, the domestic market is barely smoldering. With Gulf prices pushing toward $11 and interior processors bidding below $10, it shows a slow livestock demand compared to exports. Even less soybean oil is being refined into bio-diesel because of cheaper alternatives, over capacity within the industry, and potential disqualification from foreign markets.

While the outlook for the soybean oil market is not as vibrant as in 2008, the demand for soybean meal is improving and prices have been rising. Meal prices are up about $40 per ton from last month and USDA has increased its estimated price for soybean meal.

The export demand for US beans is rooted in the Argentine drought, which is said to be the worst in more than 50 years. Reduced plantings and spotty rains have diminished the potential crop, and USDA says the amount of rain in the next two months will determine continued rates of abandonment. In addition to the drought, late planted soybeans are at risk from frost beginning in May. The impact of the weather will be on reductions of available soybeans for immediate export and reduction of carryover stocks for later export.

In Brazil, soybean production has been reduced by a combination of adverse weather and economic conditions. While the Brazilian weather has not been as harmful as that in Argentina, rainfall has been below average is major soybean production areas. The expectations for a smaller harvest will also mean that stocks will be reduced.

Summary:
The primary dynamic in the US soybean market is a function of the drought in the Southern Hemisphere. Hot, dry weather, mostly in Argentina has curtailed production of soybeans, not only in reduced plantings but increased abandonment of fields. The soybeans that are produced will likely be held back for sale at a later time when prices may be even higher. The reduced competition and available supply have combined to increase global demand for US soybeans. With nearby and harvest futures prices flirting with the $10 range, analysts indicate the strength of the market is due solely to export demand, since the domestic crush is weaker and demand for livestock feed is soft.