Although a very wet spring delayed planting of the 2013-14 U.S. soybean crop, ideal weather materialized after the crop made it into the ground, which – for a while anyway – seemed adequate to mitigate the potential problems associated with a shorter growing season. The July USDA crop report forecast a record 2013-14 U.S. soybean crop. Before the release of the August USDA crop report, both old- and new-crop soybean prices traded down to fresh season lows. Soybean and soy product prices looked much lower. For technical analysts, it was a make-or-break of the bull market that began in 2006 as prices came to challenge a long-term uptrend line.
Even before the release of the August crop report, hot and dry conditions emerged, and analysts began trimming their crop estimates. The July crop estimate was 3.42 billion bushels, based on record acreage of 77.7 million acres and a record yield of 44.5 bushels per acre (bpa). The average guesstimates for the August report called for a crop of 3.338 billion bushels and yields of 43.472 bpa. As it turns out, analysts underestimated the crop damage. The USDA slashed the acreage estimate by 500,000 acres and lowered the yield to 42.6 bpa, for a crop that would reach only 3.255 billion bushels.
The estimate for U.S. ending stocks fell to 220 million bushels, down 75 million bushels from the July estimate, and is a throwback to the era of tight supplies. The USDA report sparked a rally, and with continued deterioration of the weather picture, November soybean prices have traded up to new highs for the year.
Normally, by late August, the crops are far more mature. But because they were planted late, they are still vulnerable to the hot and dry weather that is hitting key growing regions in the Midwest.
Estimates are tumbling, with one widely watched and well regarded analyst lowering the yield estimate to 41.8 bpa. Assuming that acreage and the harvested-to planted ratio will not be revised downwards – which they likely will be, if conditions do not improve – the crop would reach only 3.193 billion bushels, a long way from the 3.42-billion-bushel July estimate.
The estimates for demand – domestic and export – are not particularly optimistic. Without rain, ending stocks will be revised down to about 160 million bushels, or 5% of consumption, down from the potential bear market July estimate of 9% and even lower than the 6.9% August estimate. All in all, a fairly impressive bullish case.
Although there is a good chance that we are staring at a U.S. crop failure, there is a bearish case as well.
The South American crop has not been planted, but there has been a lot of debate about the size of Brazilian soy area for the 2013-14 crop. Just a couple of weeks ago, with prices falling, analysts were saying that Brazilian farmers were not likely to expand acreage. But as the poor weather in the U.S. has sent prices soaring, those estimates have risen substantially. One estimate says that soy area will grow by close to 5% from last season.
U.S. export sales have been strong. Commitments for the 2013-14 marketing year, which begins on Sept. 1, stand at 690 million bushels, well ahead of the norm for this early in the year. However, this can be attributed to low prices that foreign purchasers have not seen for a sustained period in years. The challenge will be to see new sales continue this strong now that prices have increased so much.
November beans have now rallied by more than $2 per bushel, or close to 20%. There is still a possibility of salvaging crops if timely rains appear, so trying to jump on the trend could turn into a trading disaster. We remain sidelined.