Is soybean demand on the rise?
By KRISS NELSON
The USDA released their September World Agricultural Supply and Demand Estimates (WASDE) report earlier this month — the report that is infamous for bringing crop estimates into focus.
“We are getting a sharper picture just what harvest might look like this fall,” said Todd Hultman grain marketing analyst for DTN.
Hultman said one unique factor about the September report was the uncertainty of what USDA would say revolving around the damage from the August 10 derecho that swept through Iowa. For the state of Iowa, corn crop estimates were reduced in September from 2.74 billion bushels (bb) down to 2.48 bb — about a 260 million bushel (mb) reduction.
Yield estimates for Iowa also came down from 202 bushels to the acre to 191 bushels to the acre. Harvested acres were cut by nearly half of a million acres down to 13 million acres.
Hultman said the soybean crop estimate was reduced by 38 mb from 541 to 503 mb. The soybean yield estimates were also lowered from 58 bushels to the acre to 54 bushels to the acre. Harvested acres for soybeans, however, were unchanged at 9.3 million acres.
U.S. yield estimates for corn were reduced to 178.5 bushels to the acre and crop estimates were lowered to 14.9 bb, which Hultman said both numbers were very close to what trade analysts were expecting.
In terms of the old crop for corn, Hultman said there was a slight 30 mb reduction to the export estimate.
“They took it down from 1.795 billion bushels down to 1.76 billion bushels. That boosted the ending stocks estimate for old crop stocks up 25 million bushels — a small increase and that gets carried into the new season,” he said. “It seems reasonable USDA, in the old crop season that ended in August to dial back the export estimate, but they might have dialed it back a little too far.”
Weekly export sales report along with some of the Census Bureau data show 1.78 bb of corn shipments to date.
“USDA may be giving back about 15 million bushels more when all is said and done,” said Hultman. “We still have one more Census Bureau report due out for the month of August. We haven’t seen the end of export data yet for the old crop season.”
With the lower crop estimate in the new crop season it is expected demand estimates should also be reduced.
“USDA did that for feed and ethanol demand,” said Hultman. “For feed demand, it was reduced 100 million bushels and ethanol demand was reduced 100 million bushels also.”
Hultman feels as if the 5.1 bb estimate for ethanol demand is a reasonable figure for now, given the fact we are having a hard time rebounding on the driving activity with coronavirus still being a concern in the country.
On the export side, USDA increased the corn export estimate 100 mb.
“We basically have a net wash of roughly 100 million bushels on total demand dropping down from 14.77 down to 14.67 billion bushels,” said Hultman.
Corn’s ending stocks estimates came in slightly above 2.5 bb.
“That is a little higher than the trade was expecting, but actually a close estimate giving the variables at play, but definitely lower than last month’s 2.74 billion bushel estimate,” he said. “That works out to be 17 percent of annual use.”
What are the historic price levels with a 17% ending stocks to use ratio?
Hultman said there is a fairly wide range from $2.50 to $4 with a statistical center suggesting a cash corn price in the low $3 region.
As USDA sees it, they are anticipating an average farm price in this season of $3.50 a bushel.
“That’s a pretty significant improvement from the $3.10 they estimated just a month ago,” he said. “It’s still a bearish estimate — 21.5 billion bushels of corn is still a lot of corn for surplus, but not near as bearish the numbers we were looking at just a month ago. That helps to take off some of the downside risk to that corn price now.”
World corn estimates
Hultman said there was a substantial drop from 317.5 million metric tons (mmt) to under 307 mmt.
“That is largely due to the lower ending stocks estimate that we got on the U.S. balance sheet today,” he said.
For South America, USDA increased its estimate for Brazil’s corn crop from 107 mmt to 110 mmt.
“I think part of that is largely due to the higher price environment we are seeing for corn and the changes in the export activity we are seeing lately,” he said. “The incentives are going to be very high this fall for Brazil to get planted for both corn and soybeans.”
Hultman said old crop estimates for the 2019/2020 season that just ended in August for both crush and exports were slightly increased.
USDA, he said increased the crush estimate by 10 mb to 2.17 bb. The export estimate for old crop soybeans was increased 30 mb to 1.68bb.
“That helped bring down the old crop ending stocks estimate to 40 million bushels lower and it is now 575 million bushels for old crop ending stocks estimate for the season that just ended in August,” he said.
USDA is pinpointing an average farm price at $8.55 a bushel for the United States.
“That is from a season that has gone through a lot,” said Hultman. “It has gone through trade disputes with China and coronavirus issues through this year and it comes out the other side with 575 million bushel surplus which actually stayed fairly moderate given all of the problems that are happening this year.”
Soybean exports for the old crop season at 1.69 bb was justified with the 30 mb increase in USDA’s export estimates.
“There could actually be a little tweaking of estimates higher, again,” said Hultman. “There could be a little more help on the way with that export estimate, but overall, the shipments did a little bit better than expected at the tail end of the year.”
The newest estimate for the new crop season that we are currently in, Hultman said USDA lowered the yield estimate down from 53.3 bushels to the acre to 51.9 bushels to the acre.
“That’s likely due to the hot dry weather we saw during August which is the filling period for soybeans,” he said.
The U.S. crop estimate came down from 4.42 bb to 4.31 bb — a 112 mb reduction.
“That was actually just a little above what the trade estimates were expecting, but not too far off,” said Hultman.
Most of the other demand totals– the crush estimate and the export estimate for the new crop season, Hultman said stayed the same.
“There was a slight tweak to the residual account. They took 200 million bushels out of there,” he said. “In the end, the ending stocks estimate was reduced 150 million bushels to 460 million bushels. That 460 million bushels was just about right on the mark of guesses from the Dow Jones pre-reports survey of analysts. This is down from 610 million bushels from a month ago.”
USDA is calling for a new average farm price of $9.25 a bushel.
“We have a little different opinion historically with that,” said Hultman.
The estimate of 460 million bushels represents 10% of annual use. The statistical center for historical prices for the past 20 years with a 10% of annual use, Hultman said comes out to roughly $10 per bushel on a cash soybean basis.
“We are not there yet,” he said. “November soybean prices are trading up 13 cents as we speak. There is still a good 60 to 70 cents to go. We have a little disagreement here with what history says cash prices should trade at and USDA is saying they’re looking for a farm average.”
Hultman said he will give USDA some credit, however.
“The range of actual prices is very wide,” he said. “It can trade a wide distance either above or below that statistical center. That reminds us, again, the market is very emotional and outside of the red hot export situation we find ourselves in, we still have a very tough trade dispute going on with China. There are reasons to be a little bit cautious about the $10 soybean estimate. That is just what history suggests what prices would normally trade at.”
World ending soybean estimates
Hultman said there was a modest reduction in the soybean world ending stocks from basically 95.4 mmt down to 93.6 mmt.
Brazil’s old crop estimates were left unchanged. Hultman said they are still looking at 126 mmt of soybeans and just under 50 mmt for Argentina.
In the new crop season, the world demand estimate for soybeans was increased roughly a 1 mmt to 369 mmt.
“They continue to estimate record high world demand for soybeans,” he said. “This continues to be a very strong outlook here for soybean demand and I think it is largely fair to say it is based on the very, red hot demand we are seeing from China.”
China’s import estimate did not change, Hultman said as it remains at 99 mmt.
Crush premium, Hultman said is still a little better than the 10 year average and continues to support decent demand for the crush estimate.
“That is one part of the market we saw the estimates go up in all season long,” he said. “There is still good support for soybean crush activity in this market. This has been good news throughout the trade dispute and is still true today.”
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