Why is soybean demand unchanged?
URBANA, Ill. (University of Illinois) – Despite strong U.S. soybean export numbers in the early part of the marketing year driven by Chinese imports, USDA’s World Agricultural Supply and Demand Estimates report for December maintains the forecast of 2016-17 marketing-year exports of U.S. soybeans at 2.05 billion bushels.
According to University of Illinois agricultural economist Todd Hubbs, the lack of change in the soybean export forecast surprised some soybean market observers.
“The potential for strong South American soybean export competition in the second half of the marketing year is the limiting factor in expanded U.S. soybean exports,” Hubbs said.
The USDA’s Foreign Agricultural Service World Production Report estimated the size of the 2016 crop for major South American producers (Brazil, Argentina, Paraguay, Bolivia, and Uruguay) at 6.15 billion bushels and forecasted the 2016-17 soybean crop to be 6.4 billion bushels.
“The report noted favorable planting and growing conditions in Brazil for the soybean crop that allowed early planting and the potential for an early start to the soybean harvest,” Hubbs said. “The early harvest could begin as soon as January. Compared to 2015-16 production, the Brazilian crop is forecast to be 202 million bushels larger and the Argentine crop is expected to be 7.35 million bushels larger in 2016-17.
“Although the actual crop size will not be known for several months in South America, the current weather conditions point to a large Brazilian crop with some concerns for Argentinian soybean production due to a dry weather pattern.”
Hubbs said Brazil, Argentina, and Paraguay are major soybean exporters in South America. Estimates for Brazilian soybean exports in 2015-16 are at 1.99 bb, and 2016-17 Brazilian soybean exports are forecast at 2.15 bb.
Argentine forecasts for 2016-17 were reduced by approximately 9 million bushels in the December report to 330.7 million bushels. This forecast is a 33.8 million bushel reduction in Argentinian soybean exports from the 2015-16 estimate of 364.5 million bushels.
Estimates for Paraguayan soybean exports in 2016 are at 194.7 mb, and 2016-17 Paraguayan soybean exports are forecast at the same level.
Overall, South American exports for Brazil, Argentina, and Paraguay are forecast to be 2.67 bb for 2016-17. This forecast is 113.9 mb larger than the 2015-16 estimate of 2.56 bb.
“The 2.05 billion bushel forecast for U.S. soybean exports during the 2016-17 marketing year is the largest on record,” Hubbs said. “When confronted with large South American supplies, the soybean export magnitude is due to the demand from China.” China is forecast to import 3.169 bb of soybeans in the 2016-17 marketing year. The Chinese import forecast level is 101.78 mb higher than the 3.058 bb import estimates for the 2015-16 marketing year.
Census data on U.S. soybean exports to China in the 2014-15 and 2015-2016 marketing years indicated 1.08 bb and 1.116 bb, respectively.
Current U.S. Census Bureau trade data for soybeans is only available through October, but shows strong export growth to China.
“Soybean exports to China through October 2016 are at 418 mb-30 percent larger than soybean export levels in the 2015-16 marketing year over the same period,” Hubbs said. “U.S. soybean exports to China exhibit a pattern of strong export levels in the first half of the marketing year and then dissipation through the second half of the marketing year as South American production becomes available to the world market.”
Over the last five years, U.S. soybean exports to China slowed appreciably in January and February. When considering soybean exports to China over the last five marketing years, over 85 percent of total U.S. soybean exports for a given marketing year were complete by the end of February in all marketing years concerned except 2011-12.
Through the week ending on Dec. 3, the Foreign Agricultural Service Export Sales report set net sales of U.S. soybeans at 53.71 mb sold during the week. “The continued strength in soybean sales is driven mostly by Chinese demand,” Hubbs said.
Cumulative export inspections for the marketing year were reported at 957 mb. Outstanding sales through the same period are reported at 630 mb.
Total commitments of soybean exports as a percent of the WASDE forecast level of 2.05 bb are at 77 percent.
Total commitments of soybean exports as a percent of the WASDE forecast level at this point in the marketing year ranged from 60 percent to 84 percent over the last five marketing years and place this year’s level slightly above average.
“Soybean export levels appear sustainable,” Hubbs said, “but there is understandable caution related to the U.S. soybean export forecast.
“Although the potential exists for surpassing the soybean export forecast this marketing year, developments over the next few weeks in South American crop production and Chinese soybean buying patterns will be crucial in determining U.S. soybean export levels and, in turn, possible price movements in soybean markets.”
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