One Bad Soybean Crop Away from a Major Price Run

June 13, 2012 02:21 AM
One Bad Soybean Crop Away from a Major Price Run
The U.S. supply of soybeans is tight and likely will remain so until South American growers bring in a big new crop, possibly 10 to 11 months from now. With continued problems in South America and/or problems in the U.S. Corn Belt, however, supplies could tighten further, sending soybean prices skyward.
USDA’s monthly World Agricultural Supply and Demand Estimates (WASDE), released June 12, show that U.S. stocks continue to tighten on robust demand from China and problems in the South American crop. USDA’s latest forecast for old-crop carryout of 175 million bushels was 11 percent lower than the average trade estimate of 197 million bushels. Likewise, USDA’s projected carryout for new-crop beans of 140 million bushels fell nearly 5% below the average trade estimate of 147 million bushels.
"We have been in a tight situation on soybeans for the past couple of years. When you bring this year’s tight carryover into next year, it tightens the balance sheet even further," says Chad Hart, Iowa State University economist. "U.S. soybean stocks are tight and continue to get tighter."
The stocks-to-use ratio on old crop beans, according to USDA’s latest estimates, is 5.6%, well below the historical norm of about 10%. New-crop carryout is projected to be even tighter at 4.3 percent. "We are only one bad crop away from a real price run," says Hart.
The report was definitely bullish for soybeans, says Adam Stout, risk management consultant with INTL FCStone, Kansas City. "The question is what is the upside in a market that is already as elevated as it is," Stout says. He notes that soybeans reached an all-time high in 2008 of $16.63, about $2/bu. higher than current price levels. "For prices to get that high again, we would need ongoing adverse weather conditions like we’ve seen so far this year," he notes.
Dry conditions remain a concern throughout a wide swath of the Corn Belt, particularly in Iowa, Illinois, Missouri, and Kansas. Most of Arkansas, Texas, and Oklahoma are also experiencing abnormally dry to moderate drought conditions.

World Stocks

Projected global stocks, now estimated at 53.36 million metric tons, while higher than last month’s estimate, are substantially lower than last year’s 70.1 million metric tons. "A lot of the year-to-year drop is due to what’s been going on in South America, which has taken a pounding from La Nina," says Hart. Rebounding demand from China over the past five to six months has also tightened world stock levels as well as those in the United States, as Chinese buyers turn to the United States for beans.
Still compared with U.S. stocks, world stocks look healthy with a projected old-crop stocks-to-use ratio of 15.5% and an expected new-crop stocks-to-use ratio of 16.2%. "Worldwide, stocks are getting better and are near average," says Hart. "USDA’s expectation is that the United States and South America will get trend-line yields. Overall, USDA’s production projections for the upcoming year are much better than they were last year." World soybean production for 2011-12 is estimated at 236 million metric tons. For new-crop, USDA expects 271 million metric tons of soybeans to be harvested, a 15% increase.
Most of the projected increase is expected to occur in South America. Output in Argentina is expected to rise from 41.5 million metric tons in 2012 to 55 million metric tons next year. Brazil’s production is forecast to rise from 65.5 million metric tons this year to 78 million metric tons next year. U.S. production is expected to increase from 83 million metric tons in 2011-12 to 87 million metric tons in 2012-13.


Planted Acreage and Grain Stocks

The trade will soon turn its attention to USDA’s next major crop reports, Planted Acreage and Grain Stocks, both scheduled for release June 29. "There could be more acreage on the soybean side than USDA’s previous forecast of 73.9 million acres," says Stout. "With prices as high as they were a couple of months ago, I would think some shifting as well as double cropping occurred."


See all of the data, coverage and analysis of today's World Agricultural Supply and Demand Estimates and Crop Production reports.



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