Soybeans: Can South American output fill the gap?

The U.S. soybean market entered the punishing drought of 2012 with a bullish backdrop. First, analysts expected a significant amount of soybean area to be lost to corn planting. In addition, overseas demand was very strong. Then came the heat and dramatic crop losses, dwarfing the bullish impact of smaller acreage and demand.

The August crop report showed that the average yield for the 2012-13 US crop dropped to 36.1 bushels per acre (bpa), down from the July estimate of 40.1 bpa, which was already slashed from the 43.9-bpa June estimate. The August estimate was below analysts’ estimates of 37.753 bpa. The market rallied on the report, but failed to take out the late-July highs (Chart 1).

As it turned out, acreage was not a bullish factor. New-crop soybean prices were depressed vis-à-vis corn when early planting intention estimates for the 2012-13 crop surfaced (Chart 2, next page). In March, the USDA estimated US soy area at 73.9 million acres, which would have been down from 77.4 million acres and 75 million acres in 2010-11 and 2011-12, respectively. Then – between January and May, long before there was even a clue about the drought and its magnitude –soybean prices rallied in time for farmers to beef up soy intentions. The June 29 planting intentions estimate jumped by over 2 million acres, or 3%, to 76.1 million acres, without compromising any corn area. With acreage near all-time highs, soy area ceased to be a bullish factor at all. Once the drought began, though, the extra acres made no difference at all as bean prices shot right past the 2008 highs.

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