Robust soybean demand to be met by equally robust crops

November 15, 2013 05:05 AM

The long awaited, post-shutdown USDA crop report was released on Nov. 8. And while the report did not contain any big surprises, the market behaved as though it did. Soybeans (CBOT:SF14) and soybean meal both rallied sharply back to the highs of their recent ranges (Chart 1).

It was well known that the weather improved in the final stages of the 2013-14 U.S. growing season, providing a boost to the crop that was planted late and had its share of weather problems earlier in the season. In the last crop report before the shutdown on Sep. 12, the USDA estimated the soybean yield at 41.2 bushels per acre. The average guesstimate was for an increase to 42.407 bpa, but the estimate came in at 43 bpa.

The number of harvested acres were expected to fall, but they were even lower than expected, which mitigated the bearish tone set by improved bpa yields to some degree. The average guesstimate was 75.93 million acres, but the figure came in at 75.7 million acres, down from the 76.4-million-acre September estimate.

The end result was still a better-than-anticipated crop estimate of 3.258 billion bushels (88.66 million tonnes), up from the September estimate of 3.149 billion bushels (85.71 million tonnes) and above the average of analysts’ estimates of 3.222 billion bushels (87.69 million tonnes).

Demand estimates for both the domestic crush and exports, however, were higher than expected as well, which left the estimate for ending stocks of 170 million bushels, very near expectations of 172 million bushels. As a percentage of consumption, ending stocks rose to 5.2%, compared with the September estimate of 4.7%, which still leaves us with the task of explaining the initial bullish reaction, as well as the follow-through strength over the next few sessions.

On the global side there were virtually no changes to production estimates. Because of slightly higher demand estimates, ending stocks dropped to 26% of usage, down from the September estimate of 26.6%. That will still be the highest carryout since 2010-11 and represents a smart recovery from the previous two seasons. In 2011-12 and 2012-13 ending stocks were 21.4% and 23.9% of consumption, respectively.

In South America the 2013-14 crop is now being planted and will be harvested in the spring. On November 8, the Brazilian equivalent of the USDA said its crop could be as high as 90.2 million tonnes, based on planted area. That compares with the USDA estimate of 88 million tonnes, which will be yet another record, up from 82 million tonnes in 2012-13.

Argentinean output is forecast at 53.5 million tonnes, up from 49.3 million tonnes last year, but not quite a record. Production in 2009-10 reached 54.5 million tonnes.

The demand side has been strong. The crop report revised its estimate for 2013-14 U.S. exports sharply upwards, by 2.17 million tonnes, to 39.46 million tonnes, up from 35.91 million tonnes in 2012-13 – which would be a 10% increase in US sales. But U.S. export commitments are running substantially ahead of last year at this time – by 28%. This pace is obviously not sustainable, but does provide some insight into the market’s bullish reaction to what seemed to be – at best – a neutral report.

We will have to contend with the inevitable volatility that will be generated by weather forecasts over the long planting and growing seasons in South America. Nevertheless, we maintain that the bumper crops in the U.S. and South America will leave the market with ample supplies to meet growing consumption.

We stand by our Oct. 4 short-sale recommendation. Keep stops at $1,350 basis January, close only.

About the Author
Sholom Sanik is an analyst with Friedberg Mercantile Group Ltd. He can be reached at