It finally rained in August. Too late for corn, but not so for soybeans. The most punishing heat came in June and July, just when the early-planted US corn crop was in pollination. Soybeans are planted much later, though, and were still in a position to benefit from the rain.
Soybean prices peaked in early September, even while most analysts were still forecasting a worst-case scenario for the crop. The September 12 USDA monthly crop report lowered the bushel-per-acre yield (bpa) to 35.3, down from the 36.1-bpa August estimate and not far off the average of analysts’ guesstimates of 35.8 bpa. Even the most recent weekly crop progress report put the good-to-excellent portion of the crop at 33%, only three percentage points above the worst readings that prevailed through most of the season and dramatically worse than last year’s reading of 53% at this juncture of the season.
Although soybeans that were planted early did not fare much better than did corn, late-planted crops, which include beans that are double planted, seem to have grown under fairly normal conditions. A survey of analysts taken in recent days, indicated that the average national yield would rise to 35.8 bpa. Traders, however – judging from the $1.50-per-bushel price slide – seem to believe that the improvement in yield was considerably larger.
The promise of massive South American crops to be harvested next spring is expected to provide relief, should the US “run out of beans.” As always, though, weather has made predicting South American crops impossible and we’re beginning to see shades of trouble. Argentina had an extremely wet August, which is a positive in terms of securing adequate subsoil moisture and inspired analysts to increase their crop estimates. The precipitation, however, was excessive to the point of flooding in key regions, affecting hundreds of thousands of acres which cannot be planted until the fields dry out. Late planting typically reduces yields.
The USDA estimate for combined 2012-13 Brazilian and Argentinean output is 136 million tonnes, up from last season’s 107.5 million tonnes. Some analysts have suggested that farmers will go wild because of high prices that would leave them with extraordinary profits and have come up with a “leap frog” forecast of 150 million tonnes. Aside from the potential weather issue, it is doubtful that the infrastructure for planting, cultivating, and transporting that kind of volume exists in either Brazil or Argentina. Brazil has been working on modernizing its highway network, but that will certainly not be in place for moving the 2012-13 crop to market. The USDA estimate is much more realistic. Last year’s crops were plagued with weather problems, but a year earlier the combined crop reached 124.5 million tonnes.
The other potential bullish factor is demand. Unlike many other commodities, sticker shock has not been a factor – yet. US export commitments stand at 21.4 million tonnes, well above last year at this time when sales were only 15 million tonnes. The USDA actually lowered its estimate for 2012-13 exports by 1.5 million tonnes, or 5%, from its August estimate, to 28.71 million tonnes. This compares with last year’s final sales of 37.01 million tonnes. The USDA estimate is more of a reflection of how much the US can sell, rather than demand.
Global ending stocks for 2012-13 are currently forecast at 53.1 million tonnes, or 20.6% of usage. That’s right on the border – anything lower than that has sparked multiyear bull markets in the past. To be sure, the US crop will still be significantly below the average of the past few years, even with the improved weather.
When prices approached $18 per bushel, however, the market was pricing a total disaster. Any further reduction in yield would have sent US ending stocks below 100 million bushels. With a more optimistic outlook for the crop, the market is now re-pricing the drought’s impact on soybean supply. The size of South American crops is important and the extent of weather related problems is not yet known. In all likelihood, with the expansion of acreage, production should still be sufficient to compensate for the US crop – even with some weather problems.
Still, unexpected strong demand and the South American situation remain strong variables. Remain long. Maintain stops recommended on Aug. 31at $15.40, close only.