By Joanna Newman
PRICES for soya beans have inched higher in recent days after hitting their lowest level since the 1970s.
The market is responding to hot, dry weather forecasts, which could impact Americas crop yields this autumn.
The US Department of Agriculture has downgraded its weekly estimate of the proportion of the crop rated good to excellent from 71% in the previous week to a low of 67% this week.
The weather-inspired rally has taken the Chicago August futures contract to 423.75¢/bushel on Monday (19 July) from around 412¢ a couple of weeks ago.
Low prices could stimulate export demand, especially as the US soya bean market is at last reported to have fallen below Brazilian prices.
Brazil has almost completed selling its huge recent harvest of soya beans and this could further encourage international buyers to turn to the States for beans.
However, the dynamics of this market are driven not so much by the fundamentals of supply/demand and rainfall, but rather by marketing decisions based on the governments subsidy programme.
The prevailing system of Loan Deficiency Payments (LDPs) under federal farming legislation is determining producers actions and analysts are trying to try to second-guess farmers psychology.
Farmers are effectively guaranteed their shortfall versus market value when they harvest their grain, but are still responsible for actually selling it into the market. The pros and cons of selling now versus later are complex: storage, financing and hedging costs and LDP income all come into play.
To complicate matters further, Washington is considering raising the limit for each producer above the $75,000 (£47,680) cap, which would change the behaviour of large farmers.