CBOT July soybean futures touched $16.30 a bushel on Tuesday, the highest nearby price in nine months.
Failure to Ration
The industry already has seen as many as 15 ethanol plants and soy processors shut down since the start of the drought a year ago due to lack of supply or poor margins. Major units such as Bunge's soy processor in St. Joseph, Missouri, and Cargill's Lafayette, Indiana, plant have idled.
That much capacity has not been offline since 2008, when ethanol makers went bankrupt amid skyrocketing crop prices and a global credit crunch. But analysts say more shutdowns are needed to ration demand to avoid running stockpiles down to zero.
Some ethanol plants that stalled last summer are running profitably again as a surge in crude oil prices to two-year highs made the corn-based fuel additive economical again.
Buyers at soybean processors are willing to pay exorbitant prices for small amounts of the oilseed needed right now. But they don't want to purchase more than needed, because of the risk of owning over-priced product if prices crash as expected once harvest starts this fall.
"You've got a perfect storm brewing for a grain buyer," said Jim Gerlach, president of A/C Trading, a commodity brokerage in Fowler, Indiana. "From his standpoint, not much worse could happen to him. He's in a bad fix. Everything is working out to favor the market staying extended until the new crop arrives."
High corn prices have made wheat a more viable alternative. POET Biorefining bought some wheat this year to grind into ethanol. Poultry and cattle producers this year are expected to feed their animals record amounts of wheat, traditionally a crop reserved for human consumption.
Farmers Holding Out
It remains unclear whether high premiums may coax additional grain supplies into the market. Farmers who sold most of last year's diminished haul last summer, when futures hit record highs, can now afford to gamble with the remainder. Some may hold out, hoping prices will rise as the squeeze intensifies.
Prices for soybean meal, a key source of protein in feed for hogs and poultry, have soared above $500 a ton, prompting hog feeders to adjust rations to use as little as possible.
"Right now producers are doing as much to replace it, down as low as we can go, without reducing performance," said Gene Gourley, who raises sows in Webster City, Iowa.
Tyson Foods Inc and Smithfield Foods Inc have said they have imported corn and soybean products from South America for livestock. These imports only provide a small buffer for areas near ports in the southeastern United States. It is too expensive to ship supplies where they are most needed in the heart of the interior Corn Belt.