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A bullish market continues for soybeans

By Kriss Nelson - Farm News editor | Mar 2, 2021

By KRISS NELSON

editor@farm-news.com

There was some disappointment in the Feb. 9 USDA World Agricultural Supply and Demand Estimates (WASDE) that caused corn prices to slightly drop following the release of the report.

Todd Hultman, DTN lead analyst said the report’s corn numbers were bearish, but does that make for a bearish corn market?

“I wouldn’t say that, I would say the disappointment related to today’s report is bearish. We did see an unexpected hit of demand loss in Europe that changed the world corn stock’s figures – making them higher than expected,” he said.

The story behind the bullish soybean market continued on into the Feb. WASDE report.

“Almost no matter what USDA said today, we knew soybeans were going to be bullish,” he said. “We have, perhaps the tightest ending stocks situation in history happening at the moment and there is still the possibility of soybean imports having to be increased this summer.”

Corn

The U.S. ending stocks estimate for corn was lowered from 1.55 billion bushels (bb) to 1.5 bb. This move has increased the average farm price to $4.30 a bushel.

The only change that was made on the U.S. balance sheet, Hultman said was the export estimate was raised 50 million bushels (mb) now at 2.60 bb.

“That is the number that will probably have pressure to go higher as the months roll on,” said Hultman. “But, right now, USDA just raising that very minimal amount in light of the big purchases that have been reported lately.”

Feed demand remained unchanged at 6.375 bb as did the ethanol estimate at 4.95 bb.

Hultman has said in the past he feels the ethanol estimate is roughly 100 mb too low.

“I still think that’s true today,” he said. “Not that I don’t expect ethanol production to slow down with this $5 corn environment we are in, I just think USDA’s estimate is too low in that regard. Between ethanol and room for more exports to show up here in USDA’s estimates that seems to still give us potential for a lower ending stocks number in the future – but not today.”

What does the new 1.5 bb ending stocks estimate mean in terms of prices?

The new estimate is 10% of annual use and at previous times with that same estimation, prices averaged about $4.50 a bushel.

“That is the statistical center of all of those historical prices,” Hultman said. “The price outlook we have is $4.50 for a national average, cash corn price. USDA is $4.30 for an average price. I actually think the ending stocks sheet for corn is going to be tighter than what USDA’s balance sheet looks like here in Feb. We will probably have to get some new WASDE reports to get that to show up.”

Hultman said spot corn price for China’s Dalian exchange are beginning to level out a bit.

“They have been trending higher than ever since summer and that was perhaps the best fundamental clue we had that demand was heating up for feed grains for China,” he said.

That is still true, in Hultman’s opinion.

The price of corn on the Dalian, he said translates to $10.91 a bushel as of the morning of Feb. 9 when the WASDE report was released.

“It is still a very expensive corn price that we find in China,” he said.

For the week ending Jan. 28, Hultman said some big corn sales to China were reported.

So far, he said China has accounted for 780 mb of U.S. corn sales – far more than anyone expected months ago.

The big question, however, is just when did those sales actually happen?

Hultman believes they happened months ago.

“There is a lot of debate in the ag world right now,” he said adding a Chinese company is believed to have made the purchases months ago when corn prices were cheaper.

“But, they didn’t have to report them as export sales until the ownership was transferred to China or shipment arrangements were made,” he said. “I am still trying to verify the details of this with the Foreign Ag Service and not getting much cooperation yet, unfortunately, but I will keep at it.”

Regardless of the how and when these purchases were actually made, Hultman said there is a tremendous amount of demand coming out of China and it reinforces the view, again, China had a very serious shortage of feed grain and soybeans in their country the past several months.

World corn estimates

World ending corn stocks were increased in the Feb. WASDE report from roughly 284 million metric tons (mmt) to 286.5 mmt.

“There is a mix of bullish and bearish news in these world figures,” Hultman said.

The bearish part comes from the 286.5 mmt ending stocks estimate which was higher than expected. This came from a 2.5 reduction in demand from the European Union.

The bullish side of the report, Hultman said came from USDA raising China’s import estimate for corn from 17.5 mmt to 24 mmt.

“That is a pretty hefty increase and that was encouraged by the big purchases that were reported two weeks ago,” he said. “We also saw an estimate of feed demand for China increase 2 million metric tons, so USDA is acknowledging some increase demand for corn coming from China.”

The USDA crop estimate for Argentina and Brazil remained unchanged at 47.5 mmt and 109 mmt respectively.

Soybeans

There is still a very tight supply situation in soybeans.

“This may turn out to be one of the tightest – or may turn out to be the tightest supply situation we have ever seen and we are getting very close to those numbers,” said Hultman.

USDA brought the ending stocks estimate for U.S. soybeans down from 140 mb to 120 mb. The average price estimate was kept at $11.15.

120 mb ending stocks estimate is 2.6% of annual use.

“That ending stocks estimate is so tight, it is beyond the left end of our charts which shows previous prices for the past 24 years,” said Hultman. “We simply don’t have other ending stocks to use ratio history to show what prices were.”

Will soybean prices continue to rise?

There is potential, Hultman believes.

“There is also a wide variety of swing of volatility when it gets this tight and it can become an emotional market,” he said. “I will continue to say $15 is not unreasonable in this market environment as soybean supplies are expected to remain very tight through the summer.”

USDA did not increase the import estimate of soybeans in the Feb. WASDE report, which Hultman found interesting.

“They simply reduced the ending stocks estimate by itself without changing imports,” he said.

There was a change in the export estimate, however.

“They raised exports from 2.23 billion bushels to 2.25 billion bushels,” he said. “That is a bit surprising because the export sales total right now, for soybeans, including the ones that have been shipped is already up over 2.15 billion bushels. Before today’s report, we had 97% of that export total already accounted for with export sales and the large bulk of those sales have already been shipped.”

In fact, Hultman added, China as already shipped 92% of its known sales.

“This export number is a very solid number for soybeans and there continues to be pressure to move that estimate higher,” he said.

What could possibly slow exports down?

“In our immediate view is Brazil is in the process of harvesting their soybeans. That harvest is going slow. It was 4% complete a few weeks ago,” said Hultman. “But they are making progress. There will eventually be some export competition for U.S. soybeans.”

The U.S. crush demand estimate was kept the same at 2.2 bb. Crush totals, are up 6%, Hultman said from a year ago.

“There is some room for that to go higher, but I will note our crush incentive is down at its lowest level in seven years now. That rising soybean price is taking away some of that incentive to crush soybeans,” he said. “There should be slowing of that 6% pace in future months.”

World soybean estimates

For world soybean numbers, Hultman said there are really no surprises in this month’s report.

The soybean stocks estimate for world supplies was reduced slightly from 84.3 to 83.4 mmt.

“Keep in mind that is a mid-season estimate for South American producers like Argentina and Brazil and Paraguay. It is an ending stocks for the northern hemisphere producers like the U.S. – it is kind of a mix of two different worlds here,” said Hultman.

There was no change in the crop estimates for either Argentina or Brazil. However, if Brazil’s 133 mmt crop harvest comes true, it will be a new record.

As far as China’s demand goes, their import estimate was kept unchanged at 100 mmt.

Soybean spot prices on the Dalian exchange, Hultman said has also been trending higher.

“It indicates how strong the situation is and how likely it is the demand for soybeans should remain active,” he said. “Most recently, their prices have kind of flattened out a bit as we have also seen with corn.”

However, they remain quite expensive. The current translation to China’s Dalian soybean prices is $18.08 a bushel.

“With prices that high, they still continue to have plenty incentive to keep buying U.S. soybeans and Brazil’s soybeans when Brazil’s becomes available,” said Hultman. “For that reason, the demand expectation continues to be very bullish for the soybean market.”

USDA updated its estimate for Brazil’s soybean stocks today at 57 mb for the season that just ended Jan. 21.

“They are saying even after they have this 133 million metric ton record soybean harvest, they expect Brazil to end the new crop season with ending stocks of only 59 million bushels,” said Hultman. “They are looking for another second consecutive year in a row where China has absolutely emptied the cupboards in Brazil. When that becomes bullish for the U.S. again, is just a matter of time.”

Weekly export sales to China peaked in July in Sept. and have been gradually coming down since then, which is expected.

Currently, there has been 1.3 bb of soybean sales to China.

“As I say, we’ve got 2.15 billion bushels of total export commitments. That is up 82% from a year ago,” said Hultman. “The new export estimate of 2.25 billion bushels is not far ahead of that and we still have six months to go in this current crop season. Don’t be surprised if we don’t keep increasing that export estimate for future WASDE reports. There is a very strong demand picture here – I can’t emphasize enough.”

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