Doubts about Soybean Exports Begin to Grow
Nov 19, 2013
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Soybeans prices have held up well in the last month and a half compared to corn and wheat prices. Much of this relative strength has come from a record export sales pace suggesting export demand for soybeans is hot and heavy. On the sales side this certainly seems to be the case, but grain inspected for export does not really back this up at this point. Now, the market is beginning to question the real strength of export demand and soybeans have been on the defensive.
We have been saying for weeks now that something is not adding up with soybean exports. Export sales are on a record pace, but shipments are not reflecting that. In the past few weeks the answer to this has been a slow harvest pace delaying shipments. Now that the soybean harvest is 95% complete compared to 98% last year it becomes much more difficult to argue that harvest delays are the reason for the large disparity between export sales and shipments. Now, export shipments have been good for soybeans the last few weeks, but they will have to get even better and stay strong for some time to catch up to sales. At some point soon the market may decide to put much more weight on export inspection reports rather then export sales. Normally export sales has more impact on the market, but at what point do sales stop mattering so much if the shipments are not there to follow.
Getting into the latest USDA numbers we see that export sales are very impressive. So far this marketing season we have sold 1.252 billion bushels of soybeans compared to .973 billion at this time last year. The 1.252 billion bushels of soybeans sold so far for this marketing year represents the vast majority of the new USDA projection for the entire marketing year at 1.450 billion bushels. Soybean marketing years start in September so for sales to so close to the USDA projection this early in the marketing year would suggest that the USDA will need to further increase export demand and therefore decrease ending stocks to tighter levels. This is what has had the market so excited in the last month and a half, and a big reason for the relative strength in soybeans. Initial thoughts after the November USDA report was that the USDA would have to raise exports by at least 30 million bushels pushing ending stocks to a tight 140 million bushels. However, soybeans inspected for export do not paint such a bullish story.
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Again using the latest USDA numbers we see that export shipments are not as impressive. So far this marketing year we have shipped 508 million bushels of soybeans compared to 505 million at this time last year. In fact, up until last week this years shipments had been behind the pace of last year. Now, a slow harvest did have an impact on the pace of shipments and we have been catching up, but maybe not quickly enough. For now we have sold about 280 million bushels of soybeans more then we did last year but only shipped 3 million more. As of the November USDA report we are expecting a 130 million bushel increase in soybean exports this marketing year. This is certainly possible but export shipments will have to catch up in a bigger way. It is also certainly possible that South America has problems with their crop, and if they do we will certainly hit the current USDA export projection and then some. But, what happens if South America has a good crop?
Well, if South America has a good crop it will could steal most if not all of the export business from the US. In fact some of the unshipped sales still on the books could be canceled or switched to South American origin. Now, South America is notorious for having major logistical issues with getting product to port. There have been rumblings of improved infrastructure in Brazil for the next harvest but we have heard that before. It seems likely that global buyers are skeptical of this as well and that could account for some of the export sales we have seen already. Buyers certainly remember last year when soybeans rallied as the US drew more global business while South America floundered with getting soybeans on ships. This year it may be the case that they are trying to get ahead of the curve. It certainly also may be the case that savvy global buyers could be making purchases from the US now in case there are issues with South America's crop.
If this proves to be true it would go along way to explaining why the record export sales numbers are not being followed up by record shipments. It would also suggest that there is the potential they global buyers are already covered if there are shipping delays in South America. So, price direction in soybeans may all come down to how South America's growing season progresses. If they have a good crop it sets the stage for export sales cancellations, or switches in origin which would likely translate to a bigger US carry over and lower prices. The recent weakness in soybeans may be flashing hints that the market is getting more keen to this potential set up.
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December Corn Daily chart:
January Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
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