CHICAGO, Aug 7 (Reuters) - The worst drought to hit the U.S. Midwest in half a century could push domestic soybean inventories to match their lowest level in at least 32 years, analysts said ahead of a hotly anticipated monthly report from the U.S. Department of Agriculture.
There is still time for late summer rains to bolster supplies, however, or for record-high prices to curtail demand and help maintain soy reserves.
The USDA is scheduled to release its August supply/demand report on Friday, the first monthly report of the year to include yield data from field samples.
Ahead of the report, the average estimate for U.S. soybean ending stocks for the 2012/13 "new crop" marketing year among analysts surveyed by Reuters was 112 million bushels. That would match the stocks total from 2003/04, the lowest in USDA records dating back to 1980/81.
The USDA in July projected 2012/13 soybean ending stocks at 130 million bushels. Eleven of 17 analysts surveyed predicted the USDA would lower its forecast, while four expected no change. Two reckoned there would be an increase, saying the supply squeeze would drive Chicago Board of Trade soybean prices high enough to cut demand.
Front-month CBOT soybeans Sc1 touched an all-time high of $17.77-3/4 per bushel on July 20. The United States is the largest producer of soybeans, which are crushed into soybean meal, a key source of protein in livestock and poultry feed, and soyoil, which is used in foods and biofuels.
"We are going to reach a point where people are not going to be willing to pay up for the beans or meal," said Sterling Smith, commodity strategist for Citigroup in Chicago, who pegged 2012/13 soy stocks at 140 million bushels.
"We are beginning to see people taking their turkeys to market. They are taking livestock to market. They are culling the herds," Smith said.
At the CBOT on Tuesday, benchmark November soybeans SX2 were up 10-3/4 cents at $15.95 per bushel by 9:05 a.m. CDT (1405 GMT), but down 6 percent from a life-of-contract high of $16.91-1/2, set July 23.
NEW-CROP SUPPLIES STILL IN QUESTION
Analysts were unanimous in their expectations that this summer's drought would prompt the USDA to lower its forecasts for 2012 soybean yield and production. The average trade estimate for soy production was 2.817 billion bushels, which would be a five-year low. The average yield estimate was for 37.753 bushels per acre, a nine-year trough.
The USDA in July projected soy production at 3.050 billion bushels, with an average yield of 40.5 bushels per acre.
Also, nearly all the analysts expected the USDA to reduce its forecast of harvested acres. The average trade estimate was for 74.8 million acres (30.3 million hectares), down half a million from the USDA's July forecast of 75.3 million acres.
In the last 10 years, the department has cut its forecast of harvested soy acreage from July to August three times and raised it two times. In 1988, another year of major drought, it cut the outlook for the soy harvested area by 400,000 acres in its August report.
One complication in estimating the crop size in August is that soybeans in some areas are still setting pods, a key factor in determining yield. Much-needed rains fell in parts of the U.S. Midwest last weekend, a factor that pressured soybean futures on Monday on the Chicago Board of Trade as traders mulled improved crop prospects.
"With this rainfall we just received, I think it's going to go a long way in helping the beans. Maybe you can get another half a bushel out of the yield," said Jason Ward with Northstar Commodities in Minneapolis.
Forecasts on Tuesday called for showers and cooler temperatures in parts of the drought-stricken U.S. Midwest this week, but hotter and drier weather was likely by next week. (nL2E8J723S)
Others noted that the soybean crop is developing well ahead of normal, however, a factor that may limit its ability to rebound. The USDA on Monday said 71 percent of the crop had reached the pod-setting phase by Aug. 5, compared with the five-year average of 53 percent. US/SOY
"OLD-CROP" ENDING STOCKS SEEN TIGHTENING
Along with the size of the harvest, another variable in the new-crop supply is the amount of "old crop" ending stocks carried in from the 2011/12 marketing year, which ends Sept. 1, 2012. The average trade estimate for 2011/12 soy stocks was 158 million bushels, down from the USDA's July forecast of 170 million.
Some analysts cited strong export demand for 2011/12 U.S. soybeans, especially from top buyer China, after a drought slashed South America's soy harvest.
"The old-crop demand has been better than people thought. You have not seen China quit buying those old-crop beans," said Ward.
Anne Frick with Jefferies Bache in New York expected the USDA to raise its forecast of the amount of soybeans crushed by domestic soy processors. Frick said the USDA's 2011/12 crush estimate of 1.675 billion bushels looks too small given monthly soy crushing statistics.
"I think they could go up more than 20 million (bushels) on the crush, but I don't think they will," Frick said.
As for global supplies, traders expected the USDA to lower its forecasts for both 2011/12 and 2012/13 world soybean ending stocks. But analysts still anticipate 2012/13 soy inventories rising compared to 2011/12 as South American farmers are expected to sow large crops later this year.
"Everyone is going to watch Brazilian planting when that starts in three or four weeks," said Smith. "If they have any problems down there, this market will go bonkers."
