When we last wrote about the soybean market in late August, the 2013-14 U.S. crop – now in harvest – was stressed, and output estimates were tumbling. In its September crop report, the USDA lowered the yield estimate to 41.2 bushels per acre, down from the 42.6-bpa August estimate. That shaved more than 100 billion bushels from the production estimate, to 3.15 billion bushels (85.7 million tonnes).
The USDA revision to the yield estimate came as no great shock – the figure was right in line with the average of analysts’ guesstimates of 41.172 bpa. The market rallied 40¢ per bushel regardless and maintained the rally through the following session. That proved to be the high of the range, though, as timely rains arrived to alleviate pressure on the crop. Prices have since fallen by more than $1 per bushel.
The most recent weekly crop progress report showed that the good-to-excellent portion of the crop jumped by three percentage points from the previous reading. During the U.S. government shutdown, this and other data will not be collected, so we’ll be driving in the dark for a while. Private forecasters have been revising their crop estimates cautiously higher. The October crop report should show an increase from the September estimate, but the crop will still be significantly smaller than early-season forecasts indicated.
After the September crop report, the next important report was the Sept. 30 quarterly stocks update. Analysts were off the mark with this one. This report reflects the final quarter of the marketing year, so the guesstimates were based largely on the September crop report’s 2012-13 ending-stock estimate, which was 125 million tonnes. The average guesstimate was 124 million tonnes, but the figure came in at 140 million tonnes. The market greeted the report with a 40¢-per-bushel selloff.
It was definitely a bearish development. To put things in perspective, however, at 4% of consumption, it will still be the lowest U.S. ending-stock figure in history. So it is imperative that the improved weather in mid-September be effective in raising yields substantially. Moreover, a successful harvest is also crucial. Because of the very late planting season this past spring, the crop will be in the fields longer than in other years, exposing the plants to a greater risk of frost. Only 11% of the crop has been harvested so far. That compares 39% last year at this time and the five-year average of 19%.
Even with the U.S. crop smaller than early season expectations, global ending stocks should remain stubbornly high. While the September crop report slashed U.S. output by 3 million tonnes, the estimate for Brazilian production was increased by the same amount, to a record-by-far 88 million tonnes. Planting is just underway in Brazil, so we’re a long way off. With anything even close to normal weather conditions, however, the impact of the somewhat disappointing U.S. crop is dwarfed.
At 53.5 million tonnes, the Argentinean crop will not be a record – 2010-11 output reached 54.50 million tonnes – but will be significantly higher the last year’s output of 49.40 million tonnes.
The demand side is bullish. The USDA is forecasting a 4% increase in U.S. exports, but export commitments to date show that sales are ahead by 15.8%. The entire anticipated increase comes from China. The estimate for Chinese imports is 69 million tonnes, up 9.5 million tonnes, or 16% from last year.
Even if it all gets shipped, supplies will be ample to meet known demand and beyond. Global ending stocks for 2013-14 are estimated at 71.54 million tonnes, or 26.6% of consumption. That’s the second-highest inventory level in history.
Sell short January soybeans. Place initial stops at $1,350 per bushel, close only.