Soybean prices may be headed for their biggest jump in three decades as farmers plant more fields with corn.
Growers in the U.S. are preparing to sow the fewest acres of soybeans in 10 years. At the same time, demand is rising, creating conditions that traders say may double this year's average price of $5.98 a bushel and allow soybeans to replace corn as the best-performing farm commodity.
"The day of sub-$6 soybean prices is over," said Dan Basse, president of agricultural research firm AgResource Co. in Chicago. "Demand is growing too fast for production to keep pace."
Soybeans are used in about 60% of processed foods consumed by developed nations.
Consumers could feel the pinch because food makers including Paris-based Groupe Danone and Orrville, Ohio-based J.M. Smucker Co. would charge more to make up for costlier vegetable oil derived from soybeans, said Prudential Equity Group analyst John McMillin in New York.
Higher prices in the U.S. would boost costs globally because soybean futures on the Chicago Board of Trade are used as a benchmark to set the commodity's price in other countries.
Canola and palm prices also would rise, increasing expenses for Decatur, Ill.-based Archer Daniels Midland Co. and Bermuda-based Bunge Ltd., the world's largest vegetable-oil producers.
The price of soybeans could reach $13 a bushel by the end of 2007, up from $6.74 now, said Terry Roggensack at Hartfield Trading Partners in Chicago, who accurately forecast a rally in 2003.
The price surge in the 1970s prompted farmers in Brazil and Argentina to turn barley fields over to soybeans, creating an industry with $21 billion in annual sales.
The annual return on soybeans over the last two decades has lagged behind corn as U.S. demand surged for ethanol, a gasoline additive distilled from corn. During that time, global soybean supplies grew faster than consumption as new drought-resistant seeds boosted production in the U.S. and farmers in Brazil and Argentina expanded cultivation into wild grasslands.
Trading patterns already show investors' interest shifting to soybeans from corn.
The number of outstanding corn contracts on the Chicago Board of Trade reached a record 1.43 million last month, and have since declined 3.5% to 1.38 million. The number of outstanding soybean contracts in that time rose as much as 9% from about 395,000 on Nov. 20 to a record 431,971 on Dec. 14, exchange data show.
Grain processors and speculators are betting soybeans will outperform corn during 2007. Soybeans to be delivered in November are 8.8% more expensive than soybeans for January delivery. The price of corn for December 2007 delivery is 9.2% less than for March.
"As more acres are diverted to corn, the picture for the soybean balance sheet gets tighter and tighter," said William Plummer, who manages $106 million of commodity futures at Range Wise Inc. in Chicago.
Not everyone is convinced there will be a soybean shortage. Brazil and Argentina, which account for 43% of the world's supply, may produce bigger crops, and a price rally before U.S. planting begins in the spring may encourage farmers to cancel plans to switch to corn.
Soybeans are the world's fourth-largest crop by acreage, after wheat, rice and corn.