Friday, September 23, 2011
Are You Watching The Current Dynamics In The Soybean Market?
Today continues a two-part look at the ability of the Cornbelt to supply the corn and soybean needs of the market place. Diminished yields due to the weather and increased demands have placed a burden on farmers to deliver the crop. While prices have responded, the higher prices have both rationed demand and destroyed some of the demand, and now prices are weaker as a result. Today we conclude with a look at the soybean crop and the dynamics that are currently impacting the supply and the demand.
The US soybean crop has not diminished as rapidly as the corn crop. In fact, USDA’s September estimate raised the projection by 29 mil. bu., but some of those may have already been lost with an early frost in the northern tier of the US soybean production area. Nevertheless, soybean yields have varied from 39.7 bu. in 2008 to 44 bu. in 2009, with the current yield estimate at 41.8 bu.
In his latest newsletter, Kansas State University marketing specialist Dan O’Brien says a more broad look at the yield shows a more steep upward trend in the past few years than in prior years, “During the 1970-1999 period, U.S. soybean yields trended higher at rate of 0.43 bushels per acre annually, with a standard deviation of 2.58 bushels. However, since 2000 (i.e., 2000-2011 (projected)), U.S. soybean yields are estimated to have trended higher at a rate of 0.51 bushels per acre per year. Taken together, the increasing yield trend for U.S. soybeans has been larger since 2000 than during the 1970-1999 time period, with statistical measures of yields varying around the trend by a greater degree during the earlier period.”
O’Brien believes the demand for beans and the potential for supply will lead to major changes in the soybean industry, “Given the ongoing growth in U.S. soybean export demand – primarily from China – and the competing demands for U.S. cropland to produce feed grains, wheat and other crops, it seems unlikely that U.S. soybean supply-demand balances will remain historically tight. Either a return to yearly trend line increases in U.S. soybean yields, a large increase in U.S. soybean acreage, or a sizable reduction in U.S. soybean usage will be needed to rebuild U.S. soybean stocks in MY 2012/13 and later years.” O’Brien says the US is going into a new production year in 2012 with a larger carry-in than in recent years, but the market will remain tense, “The decline in projected 2011 U.S. soybean production relative to a year ago (down 244 mb) is less than the increase in beginning stocks (up 74 mb), causing the projected 170 mb decline in total supplies for MY 2011/12. Because of what are likely to be historically tight new crop beginning stocks for U.S. soybeans in MY 2012/13, soybean markets are likely to be extremely (nervous) to any threats to the U.S. soybean crop through at least the early summer of 2012.” And he says if there are further declines in supply the market will remain highly volatile.
While Chinese imports have garnered headlines, total US soybean exports have diminished over the past two years. O’Brien says the soybean industry in Brazil and Argentina has picked up the extra global business, “U.S. export prospects have diminished over the last two marketing years largely due to export completion from South America. Brazil soybean production was record large MY 2010/11 (75.5 mmt), and is projected to be 73.5 mmt (2nd largest on record) in MY 2011/12. Argentina soybean production in MY 2010/11 was the second largest crop on record (49 mmt) versus a record high 54.5 mmt in MY 2009/10, and is projected to be 53 mmt in MY 2011/12 (which would be the 2nd highest on record). China imports of soybeans and soybean products have spurred World soybean and soybean product market prices higher and led to increased South American soybean production (and also to higher U.S. soybean production in 2009-2010).”
The new crop began its marketing year with an estimated carry-out of 165 mil. bu. which is a 5.3% stocks to use ratio. O’Brien believes there is a chance for that to fall even further, “It is still possible that % ending stocks to use levels of 5.0% or less may occur in MY 2011/12 for a number of plausible reasons. If either:
a) projected 2011 U.S. soybean production is reduced further due to early freeze, more extensive production losses exist or lower harvested acres than has yet been accounted for, etc., or
b) greater usage of soybean in any of the major categories than is currently projected later in the marketing year, then there is a reasonable possibility U.S. soybean % ending stocks-to-use falling to 5.0% or less for in MY 2011/12.”
O’Brien adds, that, “If soybean usage is on a more rapid pace than can be sustained to maintain a level of 4.5%-to-5.2% endings stocks-to-use for MY 2011/12, then it will likely be reflected in improved cash soybean basis bids, the pace of both U.S. domestic soybean crushings and soybean / soybean product exports, and in quarterly stocks on March 1st, June 1st and September 1st in 2012.” The Kansas State economist says tight supplies of both corn and soybeans will end up pushing prices higher as they battle for 2012 acres, “Tight corn supplies and high corn prices have provided carryover support for wheat and soybean prices. Market arbitrage forces are likely to force new crop 2012 futures prices for corn and soybeans higher through the late winter/spring months in an effort to convince U.S. farmers to plant both crops. Market concerns about 2012 U.S. soybean plantings and production and uncertainty about 2012 South American soybean production are likely to provide continuing support for soybean markets for the remainder of 2011 through at least spring / early summer of 2012.”
Globally, O’Brien says there is a trend toward tighter stocks of oilseeds, and increased production is needed both domestically and globally to rebuild stocks and balance supply and demand.
Summary:
US soybean production has continued to increase, and although it is difficult to see, the upward pace has been at a larger degree in recent years. Nevertheless, demand has also kept pace and carry-over stocks have been in the 5-6% range regularly. Prices will remain volatile as beans compete with corn for 2012 acreage, but soybean stocks have to increase both in the US and abroad to meet global demand.
Posted by Stu Ellis on 09/23 at 12:00 AM | Permalink