Exports continue to be a hinder for soybeans
By KRISS NELSON
Findings in the November World Agricultural Supply and Demand Estimates report released last week by the USDA provided both expected estimates and others that came as quite a shock.
Todd Hultman, DTN grains analyst, provided his evaluation of the report that he said is typically known for more accurate harvest estimates versus others leading up to November.
“With all of the challenges we have had for harvest this year, I had a lot of doubts about what the USDA would say in today’s harvest estimates,” he said. “I think they probably didn’t do too bad of a job for a November report.”
Heading into this report, the biggest concern Hultman had was with soybean numbers.
“As you probably know, we have had a very slow pace of soybean exports,” he said. “China just has not been involved so far in the new crop season and it is really showing up in the low export numbers we have in soybeans. So there was room for a higher-ending soybean stocks estimate today and, in fact, the USDA did come through with that.”
In a surprise turn of events, Hultman said the USDA “threw us a big curve ball on the corn estimate,” in its November WASDE report.
The world ending stocks for corn increased from 159.4 million metric tons (mmt) in the October estimate to 307.5 mmt in last week’s report.
“The USDA explained they went back over 10 years to 2007-2008 and revisited their estimates of China’s ending corn stocks,” Hultman said, “and so they ended up adding, basically, 5.8 billion bushels to their estimates of China’s ending corn stocks.”
The market, however, didn’t seem to show much of a reaction to that estimate at the time the report was released.
“I will tell you, at this time, corn is trading about 3 to 4 cents lower, which is not very much of a reaction for this type of adjustment and there is a couple of reasons for that,” he said. “Keep in mind that this isn’t really a change in something that just happened in the world. For instance, China just didn’t create 5.8 billion bushels of corn stocks. The corn has been there all along. It’s just USDA that changed their perception of the amount of corn that is in storage.”
Some of the more favorable aspects of the November WASDE report include the USDA lowering its yield estimates for both corn and soybeans.
“They made some allowance for the difficulties we have seen this fall in the harvest process,” he said.
Hultman said the USDA did not change any of the planting or harvested acre estimates from last month.
The yield estimate reduction went from 180.7 bushels to the acre down to 178.0 bushels to the acre.
The new production estimate for this year’s corn crop is 14.63 billion bushels (bb).
“It’s still a big crop,” he said. “But not as big as we have seen in previous estimates.”
A bit of a surprise, but not a major move, according to Hultman, was the reduction of the export estimate for corn from 2.475 bb down to 2.45 bb.
“The reason that’s a surprise is that corn exports have really been doing very well so far,” he said. “I have to think that perhaps this small adjustment in the export estimate has something to do with their big revision for China’s corn stocks. It might have been an automatic response for USDA.”
Feed estimates were also reduced 50 million bushels (mb), from 5.55 bb down to 5.5 bb.
The new ending stocks estimate for corn is 1.736 bb.
“That is slightly less than expected, but still basically supporting corn in the similar price range that we have seen all year,” he said.
World corn estimates is where Hultman said the biggest increase was seen. China’s ending stocks, instead of being estimated at 58.5 mmt, are now estimated at 207.49 mmt.
“There’s going to be plenty of discussion of what this report all means in reality and just how good those corn stocks are or what the quality of that corn is,” he said. “We will have plenty of time to dig deeper into this later, but for right now, that’s what USDA’s presenting to us.”
Hultman added the estimate for Brazil’s corn ending stocks did not change this year. However, Argentina’s corn estimate was increased from 41 mmt to 42.5 mmt.
“That’s a modest increase in the estimate in the corn crop for Argentina in the new season,” he said.
The DTN national average’s corn basis got to its widest point in September, which is expected.
“It’s starting to work higher and that’s the traditional path for corn,” he said. “It seems to be going right on its seasonal mark. The one thing, again, helping corn this year, has been their good export pace.”
USDA estimates for corn exports is 2.45 bb. Corn shipments, to date, are at 417 mb, which Hultman said is up 85 percent from a year ago.
“Obviously, we don’t expect that hot of a pace to continue if we include total outstanding sales,” he said. “Total commitments are up 16 percent from a year ago. That’s probably a more realistic estimate of the path we’re seeing here early in 2018-19. Obviously good news for corn.”
When comparing corn prices to the five year seasonal index, Hultman said corn prices typically peak about early June and they did that this year, then basically bottomed out in early September, which was just a little bit ahead of where they normally find a low for the year.
“But they had a pretty nice ride since early September,” he said. “I think that’s coming to an acceptance of harvest. The other part of that is the good export pace that we have seen for corn. So far, we are just tracking right on schedule as far as a seasonal pattern goes.”
“The challenge this year, obviously, for soybeans are exports and that is one of the areas that hit our soybean ending stocks,” said Hultman.
November estimates showed no change in planted or harvest acres for soybeans. The yield estimate was lowered from 53.1 bushels to the acre to 52.1 bushels to the acre.
“I think that’s directly affected to the weather challenges that we have had this fall,” he said. “Who knows? There may be more adjustment in January. (The) January grain stocks report on Jan. 11 is where we will get much better of an estimate on just how big this crop is this year and how much of that is good enough quality that can be put in a storage facility. This is setting up for a very interesting time to see what the number is on Jan. 11.”
The new crop estimate for soybeans is now 4.6 bb.
“It had been hovering 4.7 billion bushels so there is a little bit of a reduction there,” Hultman said.
The crush estimate is being increased again just 10 million bushels to 2.08 billion bushels. But the export estimate dropped 160 million bushels from 2.06 billion bushels down to 1.9 billion bushels, largely because China has so far stayed out of the market for U.S. soybeans in the new crop season.”
That is putting a strain on the ending stocks estimate, which is now up to 955 mb and getting close to a billion bushels of soybeans, according to Hultman.
“That is very possible later this season the way demand is going right now,” he said.
The ending stocks estimate didn’t have much of an impact on the price estimate, which is at a range of $7.60 to $9.60. Hultman said producers are currently on the lower end of that estimate.
As far as world soybean estimates for the month of November, the USDA released a slight increase at 112.1 mmt, which is up from 110 mmt a month ago.
“Most of the reason for that has to do with a revision to a previous year,” he said. “I will say that, for Argentina’s crop estimate, there was a slight reduction from 57 to 55.5 million metric tons. USDA is increasing Argentina’s corn crop estimate by a small amount and reducing its soybean estimate by a small amount.”
Brazil’s estimate stayed unchanged at 120.5 mmt.
“As you probably know, Brazil’s planting season is off to a quick start this year and weather conditions have been favorable for Brazil’s soybeans,” he said. “That appears to be doing well so far this year.”
Two Mondays ago, Hultman said there was a reduction in the China’s estimate of imports from 94 mmt to 85 mmt.
“USDA agreed with part of that, today reducing China’s soybean imports from 94 to 90 million metric tons,” he said. “By the way, they imported 94 million metric tons a year ago also. So far, USDA is sticking to this outlook that China’s total imports of soybeans are just going to be down 4 million metric tons this year. There may be room for that to drop lower as China does seem very determined about restricting their consumption while this trade war situation goes on.”
He added that the U.S. soybean basis is at its widest levels in 11 years. And it’s even worse for growers in the Dakotas and Western Plains.
“Basically what the problem is we’re just not moving exports and so we’ve got big soybean supplies building from a big harvest,” he said. “Plenty of soybeans are around the country piled up and obviously some with some quality issues after this wet fall. We’re just not moving the soybeans without China’s participation and that is hurting our cash prices.”
How are soybean exports doing?
“Not so well,” said Hultman.
The new export estimates from USDA are 1.9 bb and soybean shipments, year to date, are just 317 mb.
“That pace is down 41 percent from a year ago,” he said. “And our shipments to China are down 96 percent. Basically, we just are not doing business with China so far in the new crop season. That’s where the big problem is. There is a little bit of hope, possibly that President (Donald) Trump will be meeting with China’s president at the end of the month in Argentina and we would like to see this thing get ironed out, but still probably going to be a long process.”
As far as the futures spread for November and March soybeans, Hultman said there is no urgency of buying soybeans whatsoever.
“I think that goes along with the wide basis that we are seeing and the lack of demand on the export side,” he said. “All of those things, all of those market clues are going together and telling us that, yes, the demand problem for soybeans is for real and here is just another indication of that.”
Hultman said as far as the soybean crush prices, those are showing some signs of softening after a demand for soybean meal became strong due to Argentina’s drought. This could also have been accelerated by the 30 cent jump in the soybean prices from last Thursday when Trump tweeted about a positive response from discussions of trade with China.
“It looks like we are finally seeing some easing in crush returns, but they are still at a very attractive level,” he said. “We saw a 10 million bushel increase in the crush estimate. That is the one thing that seems to be working for soybeans this year.”
Brazil’s prices for soybeans are higher than those in the United States. Hultman said the prices are $2.09 higher at Brazil ports than those prices being seen at ports in New Orleans.
“That is largely due to the tariffs and largely due to the fact that Brazil continues to enjoy a strong demand from China whereas we do not have that benefit,” he said. “The other thing that concerns me is that, in July and August, we saw other countries, some who are not normally big soybean buyers, come around and take advantage of our cheap soybean prices and that helped fill the gap with China. But since August, we have not seen that happening.”
In a comparison of this year’s soybean prices versus the five-year seasonal index, Hultman said the seasonal pattern seems to be holding up, but in a very rough way.
“The question going forward, of course, is will that low in September, that we saw in cash soybean prices, be able to hold as we endure a season of possibly very poor demand?” Hultman asked. “A lot of it, frankly, is going to depend on the trade dispute with China and if those things can get resolved or not. It will be very interesting to watch and see if that holds up this year, but so far, even though this has been a very tough year for soybeans, it is still holding very close to its seasonal pattern.”
Bullish, bearish, or both?
Coming off the report, Hultman said he is going to call corn bearish, but with a question mark.
“Obviously, the China revision is bearish if you look at a traditional fundamental economic sense,” he said. “But if you look at the wider view of the market, and also consider that even USDA agrees that China is not an exporter of corn in any major way, it’s hard to see their ending stocks as being significant to the world situation for corn supplies. Even with today’s revision, corn stocks are now looking at a 10 percent drop to the year, but what we really want to focus on is ending corn stocks in nations that do the exporting and that’s where we see a more bullish situation overall.”
Hultman said he is labeling soybeans as bearish as well.
“Obviously that big reduction in the export estimate increased ending soybeans more than were expected and we just continue to see our soybean ending stocks estimates mount,” he said, “getting closer to a billion bushels which nobody thought we would see for a long time. We also saw a reduction in the estimate of China’s soybean imports 94 to 90 million metric tons; an acknowledgment that they are making determined efforts to cut back on their soybean use.”
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