At the end of 2007, there were indications that demand outside of the EU and China was slipping. Data since then shows that it was only a temporary lull as U.S. soybean shipments to Mexico have rebounded and the EU has not been as dominant an importer of soybean meal as it was during October-November-December (OND). While exports of soybeans and soybean meal from major exporters to China and the EU were strong during the last half of 2007, shipments elsewhere slipped below year-ago levels during OND. Analysts project that overall world import demand growth for soybeans and soybean meal will accelerate during the January-February-March quarter with Chinese import demand growth enhanced by a small soybean crop, EU-27 import demand sustained at high levels because of a feed grain shortage and import demand elsewhere rebounding smartly in January from a drop off in November and December.

Whatever hints there were in late 2007 of a demand slowdown are no longer present. The resilience of world demand puts increased pressure on the market to either attract a sizable boost in U.S. and South American soybean plantings or to rally further to find a price level that can crimp demand. Strong demand will deplete U.S. supplies by the end of the 2007-08 marketing year and production for 2008-09 will likely have to be better then currently expected to satisfy expanding world demand.

Joe Glauber, chief economist at the U.S. Department of Agriculture, said last week that agricultural commodities prices will remain high for the next few years, boosted by strong demand from the biofuels industry and robust consumption from emerging markets such as China and India. The price of soybeans, wheat and rice have surged this year to all-time highs and corn prices have jumped to a 12-year record. Glauber made his comments at USDA’s 2008 Agricultural Outlook Forum.

Glauber said the “unprecedented expansion” of the biofuels industry would keep the agricultural market tight as higher acreage devoted to biofuel crops would reduce the amount of arable land for crops such as wheat. “Prices will remain high for the next two to three years,” he said.

Glauber added that prices could come down in the long-term if farmers increased their overall production by using more arable land or boosting yields. He forecast that consumer food prices in the U.S. would rise at an annual rate of 3 to 4 percent.

No agreement has yet been reached on a level of funding for the farm bill beyond the budget baseline, USDA Secretary Ed Schafer said last week at USDA’s Ag Outlook Forum, adding that “all kinds of funding sources” are behind looked at. “The administration agreed to $6 billion in funding over the budget baseline,” Schafer said, adding the watch is now on the House and Senate as they try to work out a funding level. While the House framework deal was $6 billion over the budget baseline, he added that the $12.3 billion figure talked about via a Senate offer “is really $23 billion over the baseline…In reality, we are spending too much in this farm bill,” he added. “That’s not going to happen – a $23 billion increase.” He also noted there are “all kinds of funding sources” being looked at, including those contained in the Bush administration’s budget proposal.

The latest discussions among farm-state lawmakers are focusing on a farm bill funding level of around $9 billion over the budget baseline, but a major unresolved issue is whether or not to include any funding for the Senate-proposed agriculture disaster aid program and if so, how much. The Bush administration is arguing against any funding for the agriculture disaster proposal.

When Schafer was asked if the proposed funding is too large for commodity programs or too much spending is being proposed for nutrition programs, he pointed out the administration’s farm bill proposals did include an increase in nutrition funding, conservation, energy and specialty crops. While currently backing the $6 billion increase in the House offer, Schafer said he did “expect that number to migrate higher.”

Regarding farm bill timing, Schafer said he thought is was possible for lawmakers to come to terms on a framework for funding which would then leave “many, many issues” yet to be resolved. “I think if we’re in March to April and a framework is agreed to and the details are being worked on, then we’ll have a month extension” of the 2002 Farm Bill, Schafer predicted. But if no framework is at hand at that point and odds look low for success, he said “we won’t see a farm bill this year.”

Argentina’s Secretary of Agriculture issued its first soybean forecasts of the season last week. Soybean production for 2007-08 was forecast between 45 and 48 million tonnes, averaging 46.3 million tonnes. Last season, Argentina’s Secretary of Agriculture’s February initial forecast was 42.5 and 44.5 million tonnes with the final production totaling much larger at 47.5 million.

The soy complex closed mostly higher on February 21 as soybean futures rallied to new contract highs in all but the March contract. Soyoil continued to go up as it made new highs along with Malaysian palm oil amid talk of Chinese buying. USDA indicated that it expected 28.7 million hectares of soybeans would be planted this year. The estimate was viewed as being supportive as new-crop soybeans posted double-digit gains. For the rest of the 2008-09 balance sheet, USDA essentially used the same acreage abandonment, yield and usage forecasts that were in its 10-year baseline forecasts that were released earlier this month. This puts USDA’s 2008-09 carryout at 4.6 million tonnes, up 245,000 tonnes from where USDA previously had pegged the 2007-08 carryout. Market concerns about the sufficiency of soybean supplies could be assuaged for the time being and allow prices to temporary stabilize or perhaps set back. Any near-term complacency increases the risk that the soybean complex will face an intolerably tight situation in the next year or two. March bean futures closed up $2.94, finishing at $516.53; May gained $2.85, closing at $523.50; and July was up $3.22, ending at $528.92. March meal decreased $1.21 closing at $396.06; May was $0.44 lower, finishing at $403.66; and July meal closed up $0.33 ending at $408.51. March oil increased $13.89 to finish at $1351.64; May was up $14.33, closing at $1369.50; and July was $15.43 higher, closing at $1382.50.

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