The impact of higher commodity prices on ingredients manufacturers continues to impact margins. In October, figures show that soybean prices peaked at their highest levels in six years.
At the end of October, soybean prices hit 794 cents/bushel, a rise of 6.72 per cent in the month and the highest price level since July 1997. The strength in soybean prices was largely driven by a very poor harvest in the US - itself the result of droughts in the Midwest - that leaves the 2003/04 US soybean crop poised to be the lowest since 1996/97.
The weather conditions this summer most severely damaged the soybean crop, as soybeans have a slightly later planting season than corn and wheat.
On the demand side, Chinese demand for feed grains, including soybeans and corn, has been increasing as the demand for beef and pork has grown with rising per capita income.
According to analysts Goldman Sachs, increased Chinese demand, combined with potential weather-related damage to the Chinese corn crop, hasprompted both an increase in Chinese corn export prices and an increase in the demand for US soybean exports.
They predict that the demand for US corn and soybeans couldpotentially increase in other parts of Asia, further tightening the balance of already tight US soybean and corn markets.