Soybean stocks tighten
Soybean stocks tighten
By KRISS NELSON
The October World Agricultural Supply and Demand Estimates (WASDE) from USDA were released Oct. 9 bringing a lot of attention to soybeans.
“The report was basically less bearish for corn. We still have plenty of ending corn stocks and we are in line with where we have been in the past four years,” said Todd Hultman DTN lead analyst. “For soybeans, there is no doubt about it, it’s a bullish report. Ending stocks are historically tight.”
Hultman said he believes there is some volatile trading ahead for soybeans and there is going to be a close watch on export sales reports each morning.
“Those export sales are, so far, off to a very strong start,” he said.
The old crop estimate for corn in the season that ended on August 31, the U.S. has an ending stocks totaling less than 2 billion bushels (bb) with an average farm price estimate of $3.56 a bushel.
For the new crop season, Hultman said the harvested acre total was reduced a bit from 83.3 million acres down to 82.5 million acres.
“Some of that reduction came from Iowa related to the derecho storm, but I understand some other states were involved also,” he said.
The yield estimate stayed very close to what USDA said in September at 178.4 bushels to the acres.
The overall production estimate came in slightly lower this month at 14.72 bb.
“That was just a slight bullish adjustment,” he said.
For the new crop season, the feed and residual account USDA reduced it 50 million bushels (mb); the ethanol demand estimate was also reduced 50 mb and the export estimate stayed the same for corn.
“Even though corn is off to a strong start with exports, we can’t necessarily assume that is the way things are going to go the whole year,” he said, adding 2.325 bb of an export estimate seems plenty high for the moment.
For ending stocks, USDA estimated them at 2.167 bb, a 336 mb drop from a month ago.
“If you want to ask yourself what should I expect for corn price this year, it is going to be very similar to what you have seen the past four years as far as an average farm price estimate,” said Hultman.
Historically is that what producers can expect?
With USDA estimating roughly 2.17 bb of ending stocks that is 15% of an ending stocks to use ratio.
“There is a wide range of actual estimates, the prices actually go from $2.50 to almost $5. That reminds us we have an emotional market,” said Hultman. “The statistical center on what we can typically expect from this scenario is an average corn price of about $3.50 a bushel. We are very close to what USDA is expecting at this time.”
wThere is currently some benefit in corn prices, he believes due to the tight soybean supply situation.
With those numbers, USDA has an estimated farm price of $3.60 a bushel.
World corn estimates
The world ending stocks estimate for corn, Hultman said was reduced this month closer to 300 million metric tons (mmt).
“That was reasonable drop there, partly due to the U.S. and also partly due to the drop in the production estimate from Ukraine,” he said.
Ukraine’s corn crop estimate dropped from 38.5 mmt to 36.5 mmt.
“Ukraine did experience dry weather this year and apparently they are finally starting to acknowledge that hit some of the corn crop,” said Hultman.
As far as estimates for Brazil and Argentina, there was no change in the production estimate as they are both just getting a start on planting.
World demand for corn was reduced 2 mmt and beginning stocks number for corn was reduced almost 5 mmt this year.
“That points to a revision from a year ago, and that had largely to do with lower September stocks that USDA found for the old crop season,” said Hultman. “There are several changes there, but the overall takeaway here is that we have a lower estimate of ending world corn stocks.”
USDA, Hultman said, kept the export estimate unchanged a 2.32 bb. That number is up 32% from a year ago.
Hultman said it is worth noting that domestic prices in China are still very high.
“They just came back from holiday and their domestic corn prices are still around $9.20 a bushel or higher, so they still have incentive to make more corn purchases,” he said.
It was expected USDA’s estimate of China’s imports of corn would be raised.
“For some reason, USDA did not increase that number. It is still at 7 million metric tons,” he said. “But, we already are seeing commitments for more than that. At some point, in the future, that will likely be raised.”
Soybeans were the commodity of the day, Hultman said.
“They’re the No. 1 commodity that is going to keep getting our attention as we work through this winter and get closer to finding out what the South American crop will be like,” he said. “This could be a very bullish time for soybeans.”
Ending stocks for the old crop season of 523 mb, Hultman said line up with the September 1 total that USDA found in the quarterly grain stocks report.
For the new soybean crop season of 2020-2021, Hultman said we are seeing an adjustment of lower harvested acres for soybeans. Instead of 83 million acres, USDA is now looking at 82.3 million acres.
Those reductions, he said primarily came from Kansas, North Dakota and South Dakota.
The production estimate for this year came down a bit, he said to 4.27 bb.
“That’s down from 4.31 in last month’s estimate,” he said. “The yield stayed the same, but it was primarily due to the small number of harvested acres that the crop estimate came down.”
The only real change on the demand side for new crop soybeans came in exports and this was to be expected, according to Hultman with soybean export sales off to such a strong start this year.
“USDA increased that export total 75 million bushels to 2.2 billion bushels,” he said. “Those increases may not be over yet as it’s hard to tell, of course, just how long China will keep buying soybeans, but so far, they seem to be an eager buyer and don’t show any signs of slowing down yet.”
The new ending stocks estimate for the current season is 290 mb, which gives an ending stocks to use ratio of 6.4%.
“On both counts, that is the lowest in five years we have seen for soybean supplies,” he said.
USDA estimates an average farm price estimate of $9.80 a bushel.
Historically, however how have soybeans traded with a 6.4% ending stocks to use ratio?
“We see something right around $11 a bushel as an average expectation for where cash soybean prices should trade at this time,” he said. “Any time our ending stocks to use ratio gets below 10 percent, the range of prices widens out considerably. Once again, that reminds us that we are dealing with an emotional market and when supplies get tight, it gets even a little more emotional at times. There could be a lot of volatility in this type of market ahead.”
Our concern all along has been, are soybean stocks getting dangerously tight?
“China has had incredible strong demand and we are just starting a new crop season in South America, and of course, there is always weather uncertainty that goes with that,” said Hultman. “Even though we are in the midst of what looks like a very good harvest for corn and soybeans in the U.S. this year, we have very legitimate concerns of dwindling soybean stocks and of course, that will be bullish for prices.”
World soybean estimates
On the world scene, Hultman said world soybean stocks fell from 93.6 mmt to 88.7 mmt.
“When USDA estimates South American stocks totals, they’re taking it from the mid-season for South America, and so, this is not what I would call a true ending stocks estimate,” he said. “It incorporates ending stocks from the U.S. but for Brazil and Argentina, it is a mid-season estimate.”
Hultman said Brazil’s ending stocks are estimated at 82 mb in this current season and for Argentina are 354 mb.
“If you put that all together with the U.S. –we are the top three exporters of soybeans –the ending stocks total for the three countries is 726 million bushels,” he said. “That is a very narrow world outlook for soybean prices. It tells us that there is not a lot of room for weather problems for South America this year and that is something that will be watched very closely.”
China’s soybean import estimate increased from 99 mmt to 100 mmt.
“USDA acknowledging there, that China continues to show stronger than expected demand for soybeans this year,” said Hultman.
Soybean export commitments
Soybean export commitments, Hultman explained are those sales that are on the books, plus actual shipments that have been made. That total right now, is just under 1.5 bb.
“That is also more than double than a year ago — up 151 percent right now,” he said. “USDA’s estimating exports at 2.2 billion bushels. That is up 31 percent on the year.”
Is this how things will stay?
“We don’t expect this red hot time of export sales to last all 365 days through the season,” he said. “This is the hot time of year for us as far as exports go. We know Brazil is tapped out and they won’t really have anything, probably until at least February, now available. There is a lot of uncertainty here. The U.S. is the source of exports right now. We just don’t have good information enough about China to make a good guess as to how much they are going to take this year, but, so far, obviously we are off to a very good start.”
Hultman said there wasn’t much change in crush for this month’s report.
“As we look, the value of crushing soybeans and in return getting the extra value for meal and soybean oil, still is offering a healthy premium – just under 17% of the soybean value – comes in the form of a crush return and that’s a little bit above the 10 year average levels,” he said. “It is still somewhat encouraging.”
The soybean crush in the old crop season with the statistics we have to date through August, is up 3% from a year ago,” he said. “That’s very close to in line what USDA has currently estimated on the books.”
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