Weak US soybean crop fails to hold prices

Soybean prices have been coming off since late summer. After a corrective $1-per-bushel bounce in October, the market is testing the lows.

The 2011-12 US crop was planted on 75 million acres, 2.5 million fewer acres than the previous two seasons to accommodate expectations of lower global demand and because it was more profitable to grow corn.

The crop turned out much worse than planned. Although acreage was 3% below the previous season, output was down 9%, to 3.046 billion bushels. Inclement weather hampered the crop’s development, which resulted in very weak yields. The USDA lowered its yield estimate once again in the November crop report, to 41.3 bushels per acre (bpa), down a notch from last month, but significantly below the 43.75 bpa average of the past two seasons.

The disappointing US crop kept prices well supported at the $13-per-bushel level until they broke in mid-September. There are two issues that will influence prices over the near term: The size of South American crops and demand.

There have been conflicting estimates regarding the Brazilian and Argentinean crops. We’re past the fears that La Ninã will affect the planting season. Moisture required for developing plants may not be at optimum levels, but seem to be adequate. The USDA revised its estimate for the Brazilian crop upwards by 1.5 million tonnes from its October estimate, to 75 million tonnes. That was a bit of a surprise, in part because it was widely believed that Brazil would be sacrificing some soy acres to grow corn, which has been and remains more profitable.

Argentina is following the script, however. The USDA lowered its estimate by 1 million tonnes from the October estimate, to 52 million tonnes. It’s still very early in the growing season for both countries, and production forecasts are anything but certain at this point.

The USDA forecast for US exports indicates low expectations for overseas demand, at least for US beans. The November estimate was slashed by 1.36 million tonnes, to 36.06 million tonnes. That’s down from 40.86 million tonnes in 2010-11.

Export commitments have been choppy since the marketing year began on Sept. 1, with some decent weeks and some horrible weeks. Overall, though, sales are running well behind both last year’s pace and the pace required to meet the USDA 2011-12 target. Commitments stand at 19 million tonnes, down from 29.7 million tonnes last year at this time. A year ago, that represented 72% of final sales. The current commitment figure is a limp 51% of projected USDA sales! That would mean new sales must average about 450,000 tonnes per week for the balance of the marketing year to meet the USDA forecast, a heady task.

Studying US sales, however, does not present a complete picture. Larger crops in South America are here to stay, and with that comes a shift to larger sales from South American origins. The 2011-12 marketing year will be the first year in which combined Brazilian and Argentinean exports of 48.8 million tonnes will overtake 36.06 million tonnes sold by the US. Last year US sales were 40.86 million tonnes, compared with 39.16 million tonnes combined for Brazil and Argentina.

In fact, the estimate for global ending stocks is actually down from last year’s 30.9% of consumption, to 27.6%, partly because of the large drop in the US crop but also because of expectations for higher global demand. US exports are no longer the sole harbinger of global demand.

If US exports do not begin to improve significantly, we will maintain our short position. In the meantime, we advise using a $1,235 per bushel stop, basis January, close only.

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