Soybeans Rise as Smaller South American Crops Cut U.S. Reserves

May 12 (Bloomberg) -- Soybean prices rose for the third straight session as declining South American production boosts demand for shrinking U.S. supplies.

Inventories on Aug. 31, before the next harvest, will total 130 million bushels, down from 165 million estimated in April and 205 million bushels on hand a year earlier, the U.S. Department of Agriculture said today. U.S. inventories represent 4.3 percent of projected use, the tightest supply ratio since 1966, USDA data show.

“It’s a very tight inventory,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “There’s more upside” until prices rise high enough to slow demand, Gerlach said.

Soybean futures for July delivery rose 1.5 cents, or 0.1 percent, to $11.175 a bushel on the Chicago Board of Trade. On May 7, the price reached $11.31, the highest for a most-active contract since Sept. 29.

Estimated global production this year will fall to 212.8 million metric tons, compared with 218.8 million tons forecast a month ago and a record 221.1 million tons harvested last year, because of smaller crops in South America, the USDA said.

Global consumption this year is forecast at 222.5 million tons, compared with 225.4 million tons projected in April. Inventories on Oct. 1, before the Northern Hemisphere harvest, will fall to 42.6 million tons from 45.8 million estimated in April and from 53.1 million tons last year, the USDA said.

China’s Imports

The USDA raised its estimate of Chinese imports from all sources in the marketing year that ends Sept. 30 to a record 37.5 million tons, from 36 million forecast in April. The Chinese government this month said it wants to build a reserve inventory of 7.5 million tons of soybeans, or almost half of the 16 million tons harvested in September and October.

U.S. exporters reported sales of 654,400 metric tons of soybeans in the week ended April 30, with China purchasing 30 percent of the total, the USDA said May 7. Since Sept. 1, U.S. sales to China have increased 41 percent from a year earlier, according to the department.

“China is squeezing the market to build strategic reserves,” Gerlach said. “Until there is confirmation of a slowdown in Chinese buying, prices will continue to rise” toward a target of $12.23 a bushel, Gerlach said.

Soybeans are the second-biggest U.S. crop, valued in 2008 at $27.4 billion, government figures show. Corn is the largest at $47.4 billion.