$15 Old-Crop Soybeans
Apr 17, 2014
Hello Pro Farmer Members!
Old-crop soybean futures surged above $15 last week as NOPA March crush was record-large for the month and came in nearly 8 million bu. higher than traders expected. The strong crush pace suggests USDA’s 5-million-bu. downward revision to its crush forecast in the April Supply & Demand Report was in the wrong direction. But I'd be surprised if USDA quickly reverses course and upwardly revises its crush forecast in May. Why? Because domestic feed demand is expected to decline as porcine epidemic diarrhea virus (PEDV) further cuts hog supplies. Plus, the crush pace typically slows dramatically during summer, especially in tight supply years.
Even if USDA keeps its crush (and soybean export) -- forecasts unchanged next month, the message the demand side of the market is sending to traders is clear -- current prices aren't high enough to slow use. That shouldn't come as much of a surprise, actually. While $15 old-crop soybean futures are historically strong, the soybean market has shown very little response on the demand side to really high prices in the past. The runup to the all-time high of $17.89 during the summer of 2012 only slowed total soybean use in the 2012-13 marketing year by 56 million bu. (1.8%) from 2011-12. With old-crop futures around $2.80 below the all-time high, we shouldn't expect to see much of a slowdown at current price levels.
On the export front, China is in the news again. An official from China's top soybean buyer told Reuters Chinese firms are likely to default on another 1.2 MMT of soybean shipments from the U.S. and Brazil. This is on top of the roughly 500,000 MT of soybean shipments Chinese buyers have already defaulted on. Declining feed demand combined with poor crush margins are backing up soybean supplies at ports, limiting Chinese importers’ ability to get letters of credit and curbing their need for soybeans.
Massive washouts of U.S. soybean purchases are unlikely, however. As of April 10, there were only 5.2 million bu. of outstanding old-crop soybean sales to China on the books, with another 33.65 million bu. of outstanding old-crop sales to "unknown," some of which likely are to China. Chinese buyers may default on some U.S. soybean purchases, but not enough to have a significant impact on the old-crop balance sheet.
Clearly, the soybean market must find a price that slows use and rations tight old-crop supplies. The question is whether that happens in futures or the cash market -- or both.
What happens over the coming months will have some impact on the 2014-15 marketing year. Brazil produced another record soybean crop this year and those beans eventually need to find a home. Chinese defaults now mean delayed Brazilian soybean shipments, which also suggests Brazil very likely will still be shipping 2013-14 crop soybeans when our new-crop supplies are available. The one constant the soybean market has been able to count on is very strong U.S. soybean export demand through the first quarter of the new marketing year and into the second quarter -- sometimes longer. If Brazil "steals" some of the strong post-harvest demand, it could influence the demand side of the 2014-15 balance sheet. And don't forget, record supplies are very likely in 2014-15.
That's it for now...
... have a great weekend!
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