"The entire grain complex feels weaker, and soybeans are probably leading the way," says Ben Parks, risk management consultant for INTL FCStone, Kansas City.
USDA lowered its estimated 2011-12 soybean crush by 10 million bushels and dropped export projections by 25 million bushels, which resulted in a 35-million-bushel increase in ending stocks, now projected at 230 million bushels. The ending stocks figure was well above the average trade guess of 213 million bushels.
World Supplies Piling Up
World stocks estimates were also higher, up 1 million metric tons from the November estimate, mostly on U.S. demand losses. Brazil and Argentina soybean production estimates were unchanged.
"We’ve known for some time that soybean exports have been slowing down," says Parks. "For the last two to three months, U.S. export volumes have not been anywhere near where they were last year." If demand for U.S. soybeans doesn’t begin to pick up, prices could be headed even lower. "Bean demand is struggling," Parks adds. The entire soybean complex, beans, oil, and meal, hit 14-month lows recently.
"Funds are liquidating their long positions and are now actually net short in soybean meal and soybean oil," says Parks, who says soybeans could lose 50 to 75 cents more before USDA releases its January WASDE report.
If the marco-economic situation in Europe worsens, prices could drop substantially. "I don’t think prices will drop below $10 per bushel unless we have a severe global economic problem," says Sterling Smith, market analyst with Country Hedging, Saint Paul, Minn. "If Europe worsens quickly, there will be a flight to safety."
Demand destruction, both global and domestic, has been large enough to inflict measurable damage on soybean prices. "The chicken flock had to be culled and cattle numbers are historically low," says Smith. "Ethanol demand is left to support the corn market, but the bean market is left without any solid underpinnings."
Crush demand down, too
Oilseed crushers are also pulling back. Not only is demand for soybean meal slipping, but soybeans are also in tight hands, and that has further worked to decrease the soybean crush, Smith says. With demand for soybean meal weaker, crushers are processing fewer beans to help drive up the cost of oil and improve their margins, he adds.
USDA’s January WASDE report, released January 12, is more important than the December report, says Parks. In January, USDA will release final production, yield, and acreage numbers for the 2011-12 crop.
"Corn prices will be more supported than beans over the next few months," says Smith. "That could lead to more corn planting, which in turn should put a floor under the bean market," Smith says. He expects that floor to be somewhere near $10.40 on March futures.
For More Information
Read full coverage of December WASDE reports.