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Wednesday, March 14, 2012

There Are Many Dynamics Driving The Soybean Market


What is happening with the soybean market?  Are soybean traders concerned about loss of acreage?  Does the market foresee good days ahead and wants a piece of the action before the market goes up?  Whatever is driving bean buyers, there are many dynamics in that market which can keep it marching at the same pace with corn.  In fact, the soybean to corn ratio has improved from 2.0 to 2.29 in the past couple of months giving corn a run for its money in the spring planting race.  If you are keeping a scorecard to tell the players in the bean market, we can provide the line-up.

The latest comprehensive report on soybeans came in the March 9 USDA Supply and Demand report.  Interestingly, the soybean economists left the production and use numbers unchanged from the prior month, and there have not been that many changes in recent monthly reports.  From the old crop, a supply of 3.286 billion bushels is available.  The total use is projected at 3.011 billion bushels, with a carryout of 275 million bushels, which is a 9.1% stocks to use ratio and one of the higher in recent years.

But there are many dynamics in the bean market according to Kansas State University marketing specialist Dan O’Brien.  And he says those dynamics should be considered by someone with beans that are unpriced.

1) The domestic crush is 1.615 billion, and has been trending lower.  O’Brien says the shortfall of soybean production in South America will mean global needs for soybean meal and oil will have to shift to the US, and if the US is going to export more, the domestic crush numbers will increase.

2) Soybean exports are forecast at 1.275 billion.  The La Nina drought in soybean production regions of Argentina, Brazil, and Paraguay has already reduced supplies available for export to world buyers.  Those buyers who need beans will have to shift their orders to the US and export demand may increase 25-100 million bushels in the USDA’s WASDE reports for the balance of the spring.

3) Soybean ending stocks and the ratio to use for the old crop will be 9.1%.  O’Brien says that number compares to 6.6% for the 2010 marketing year and 4.5% in the 2009 marketing year.  He says if increased exports of beans or soybean meal occur, that number will drop as ending stocks drop.  He says a 50 million bushel increase in exports will drop the stocks to use ratio to 7.4% and a 100 million bushel increase from crush or exports would drive it further down to 5.6%.  And he adds, “With these types of possible impacts on U.S. soybean supply-demand balances, soybean prices are expected to continue to be highly volatile and responsive to any U.S. or South American weather threats or demand shocks through the late winter, spring and early summer of 2012.”

4) The average price for the marketing year will be $11.40 to $12.60.  Those are higher than the past two marketing years and have been trending higher.  O’Brien says there may be a bidding war for new crop acres, but for the old crop tight supplies of corn have provided carryover support for soybeans in recent marketing years. As the soybean price climbs, the soybean to corn futures price ratio reflects the soybean advantage.  He says this indicates market concerns over South American production and risks of tighter global supplies, which are not yet reflected by USDA statistics.  A higher forecast for exports will raise the marketing year average price further.

5) Chinese demand for US soybeans is forecast to be 55 MMT, compared to 50 and 52 MMT in recent years.  O’Brien says Chinese imports of beans and meal have been one of the two major market factors spurring global demand since 2000.  In recent years, that has been the primary reason for South American soybean production expansion.

6) Global ending stocks for soybeans of 22.4% are down from 25% and 27% in the past two years. O’Brien suggests that the tightening of global stocks will provide support for US soybean markets in the late spring and early summer, in conjunction with US crop acreage trends and yield results in critical areas of South America.

7) USDA is projecting a 3.215 billion bushel crop in 2012. O’Brien says production continues to climb, and even based on increased acres,  Soybeans will see 155-160 million bushel increased use.  He says without that additional use ending stocks would be higher and price projections would be near $10 per bushel.

8) New crop ending stocks will be 209 million bushels, the stocks to use ratio will be 6.5% and the average price will be $11 per bushel.  O’Brien says USDA believes there is an 80% chance for soybean prices to be near $10 to $10.60 per bushel, pushed lower by higher ending stocks.  However, he says that means there is a 20% chance of another year of yields below trend line averages.  The latter would produce a 7.8% stocks to use number and a $12 average price.

Soybean prices have been steadily climbing for the past 6 weeks, driven by a number of factors, including South American production, Chinese demand, and others.  However, many of the dynamics defining the price of old crop soybeans are still changing and higher prices could still be reached.  New crop soybeans are currently buying acres, and despite the expectations for a more than 3.3 billion bushel crop, less than 8% will be left in the form of surplus stocks.

Posted by Stu Ellis on 03/14 at 11:43 PM | Permalink

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