US soybean prices have remained extraordinarily well supported through the first half of 2014 as a record South American soybean harvest, building global stocks and an anticipated record US soybean plant fail to dampen prices.
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US soybean stocks are expected to decline by 11 per cent in the 2014 season as record domestic demand for beans for crushing, along with a robust pace in exports, compound the effects of a multi-year run of weak soybean harvests in the US.
The combination of strong demand and weak harvests is expected to result in US soybean ending stocks 24 per cent below the five-year average.
Despite a projected 23pc increase in global stocks this season - mainly the result of a 156 million tonne South American harvest - Chicago Board of Trade (CBOT) old crop soybean prices are expected to continue to diverge from corn and wheat prices as tight US stocks continue to provide short-term support.
Due to these extremely tight US stocks, a steep inverse has developed between 2014 and 2015 CBOT soybean futures prices.
The inverse - where soybean prices for the 2014 season are considerably higher than 2015 season prices - is being driven by relentless demand for old crop soybeans and the expectation of a record large new crop US soybean planting of 81.5 million acres.
Until either enough soybeans are available to comfortably supply current demand - either through US imports or new crop harvest - or demand for soybeans shrinks, old crop prices will continue to hold at higher levels.
The result is price support for both new crop soybean prices and the entire grain and oilseed complex.
New crop US corn continues to encounter good growing conditions with CBOT prices declining 12.6pc during the past month despite the added support from the soybean complex.
Until the arrival of new crop soybeans and a subsequent decline in soybean prices, we are likely to see corn and soybean prices continue to diverge.
For Australian growers, the movements in corn and soybean prices are crucial for domestic feed grain price direction.
While Australian grain prices remain quite favourable by virtue of tight domestic stocks, the anticipated fall in CBOT soybean prices in August is expected to impact global trade flow and therefore the Australian feed grains complex.
The tightness in old crop US soybeans is currently one of the few remaining supportive influences in global grain and oilseeds markets.
With expectations of a record new crop US soybean harvest in the second half of this year, we will likely need another supply hiccup to drive our 2014-15 harvest prices higher.
Graydon Chong is Rabobank's senior grains analyst.