Soybeans: The Next Looming Shortage

Vegetarians and carnivores alike will soon be paying more for food. America’s supply of soybeans is projected to reach its lowest level on record this summer. As a result, the crop’s prices are surging, and shortages are already being reported. Some nations are being accused of hoarding the commodity. Is it possible that the land of plenty is in for food shortages?

America’s supply of “old crop” soybeans will be the “smallest ever” this summer, according to a May 20 Agriculture Online report. The estimate represents the 2009 soybean crop year that ends at the beginning of September.

The new private sector supply estimates place the “old crop” soybean supply at 75 to 77 million bushels—a huge shortfall from the United States Department of Agriculture’s (usda’s) May estimate of 130 million bushels and its previous April estimate of 165 million. Consequently, soybean prices are climbing, causing some buyers to try to secure supplies ahead of the projected shortages.

This is an “extraordinarily tight number by historical (or any) standards,” noted Vic Lespinasse, a Chicago Board of Trade (cbot) market analyst and floor trader. “[W]e’re going to either run out or ration,” another unnamed floor trader said, quoted by Agriculture Online.

Soybeans are a source of protein and a widely used food ingredient, especially for livestock feed. They are also a source of vegetable cooking oil, as well as high-quality, heat-resistant lubricants and hydraulic fluid. Soybeans are even used in plastics. Additionally, biofuel usage is turning increasing amounts of soybeans into diesel fuel.

The twin blights of lower supply and higher demand are stressing the market; thus, price hikes could be on the way.

Argentina, Brazil and the U.S. are the world’s three largest soybean producers, and each is projecting smaller crops. Severe droughts coupled with farmer strikes have slammed Argentinean exports. With 90 percent of the harvest complete, production is estimated to be down by almost 40 percent. Brazil’s production is also reported to be down due to drought.

The verdict is still out for America this season, but with the widespread flooding reported throughout some of America’s soybean country earlier this year, U.S. production may suffer as well. In Michigan, for example, the Lansing State Journal is reporting that as of May 17, farmers had been able to plant only 15 percent of their soybeans, compared to 51 percent at this time last year.

Meanwhile, the Chinese “started their soybean stockpiling before anyone realized the lower world soybean production,” notes Agriculture Online. “As a result, regular U.S. soybean production customers such as Mexico, Japan, Taiwan and Europe have been scrambling looking for secured supplies.”

“In fact, if Chinese purchases continue at this kind of level then we are potentially looking at the tightest U.S. ending stocks in many years, possibly on record,” wrote analyst Dave Norris, a former agricultural commodities broker and trader. “This is a situation that should not be underestimated, with late plantings and therefore maturity and harvesting, coupled with the dramatic crop reductions in Argentina, the U.S. is in very real danger of running out of soybeans this year.”

Chinese state media giant Xinhua News created a stir in March when it quoted unnamed Chinese experts as supporting the creation of a Chinese soybean stockpile of 50 million metric tonnes—more than the total yearly Argentinean production.

In April, China bought a record 3.71 million tons of soybeans, according to Howe Street analyst Sean Brodrick. Last week, China bought a whopping 27 percent of U.S. soybean exports. That brings purchases of U.S. soybeans since September up an astounding 41 percent from a year earlier, according to the usda.

If China really is looking to dramatically increase its food stockpiles, there could be implications for the U.S. dollar.

“China is buying up all domestic soybean productions, forcing their domestic crushers to import U.S. soybeans. This reduces China’s trade deficit and accumulation of dollar reserves,” says MarketSkeptic’s Eric DeCarbonnel. In other words, if the Chinese are spending their dollars buying U.S. soybeans, there is less money to lend to the American federal government.

At a time when America is looking to finance record deficits, any slowdown in Chinese demand for U.S. treasuries could cause dollar weakness. A weak dollar translates into higher costs for imports, and potentially higher interest rates, as the U.S. government seeks to attract additional lenders.

But perhaps the more dangerous aspect is that America is allowing its food reserves to drop so low—currently at only a 27-day supply for soybeans.

In 1994, a Washington-based research group highlighted the potential of a national food shortage by 2030. At that time, the Trumpet warned:

But figure in the increasing occurrences of floods, hurricanes, earthquakes, drought and other unnatural disasters and it is sure to occur much sooner than predicted. …With food as our largest export product, the United States stands to lose the most in any trade war if any “natural” or unnatural disasters should cause us to have a bad year. National reserves for our own needs, in case of just such an emergency, are very small and would barely last long enough to get us through to the next growing season. Who would help us, the greatest humanitarian nation ever, should we have a crisis?

America’s days of plenty are ending. Remember, only a little over a year ago, some stores in the U.S. were rationing rice, flour and cooking oil. This prosperous country is by no means immune to shortages in the food supply—and the social instability that so often results.

Prepare now for increasing shortages of staple food products. For more information on the root cause of the developing U.S. food crisis, read “When the Food Runs Out.”