By Sholom Sanik
Back in April, early forecasts for a record 2013-14 US soybean crop pushed prices down far enough for even die-hard bulls to declare lights out on the bull market. It was a given that the coming record crop would replenish low inventory levels that had resulted from strong domestic and foreign demand.
Initially, the wet spring that hampered corn planting was not viewed as problematic for soybeans, because its planting window closes much later. But as the planting season dragged on without any significant progress, traders began to worry that the crop would be planted late enough to extend the growing season into frost season.
As of the most recent crop progress report, 92% of the crop has been planted, compared with 99% last year at this time and the five-year average of 95%. Those numbers don’t tell the whole story, though. About a third of what’s been planted just made it into the ground over the past two weeks. Last year the crop had been almost completely planted several weeks previously. At this point, a disaster has been avoided, but the shorter growing season will give bears something to worry about throughout the summer.
The June crop report maintained its May estimate for the 2013-14 US crop at 3.39 billion bushels. The jump in the estimate for ending stocks, to 265 million bushels, up from a record low 125 million bushels, or 4% of consumption, can hardly be an accurate reflection of current developments and will almost certainly be revised downwards in the coming months.
The forecast for record average national yields of 44.5 bushels per acre is very courageous, given how late the crop was planted. The only time US yields were even close to that level was in 2009-10. Excluding that season, the five-year average yield was 41.28 bushels per acre. While the excessive precipitation was certainly beneficial, particularly after subsoil moisture was compromised during last year’s drought, it is a very optimistic estimate.
The quarterly stocks report, scheduled for release on June 28, will be important to determine how strong domestic consumption has been and just how tight old-crop ending stocks will finish up the marketing year. The accompanying acreage report will be far more significant, though, because it is a more accurate reflection of how many acres farmers planted.
One other note on the domestic front: Soybean oil received a new lease on life when Congress instituted biodiesel incentives early last year, which included a $1-per-gallon tax credit. The USDA estimates that soybean oil usage for biodiesel will grow during the 2013-14 marketing year to a record 5.4 billion pounds, 10% above 2012-13 usage. That represents 27% of total U.S. soybean oil consumption. To put that in perspective, consider that as recently as 2009-10, only 8.7% of U.S. soybean oil was used as biodiesel.
The outcome of the U.S. growing season is crucial after U.S. supplies for the 2012-13 marketing year have been all but depleted, as illustrated. New-crop prices will certainly gyrate with the inevitable threatening weather forecasts, but there is no real urgency.
Brazil and Argentina have produced record crops of 85 million tonnes and 54.5 million tonnes, respectively. That’s up from 83 million tonnes and 51 million tonnes the previous year. Global ending stocks are estimated at 73.69 million tonnes, or 27.3% of consumption. That is just shy of record burdensome stocks we saw in 2006-07 and 2010-11. Although that figure is highly tentative, because US acreage and yield estimates are probably already too high – not to mention the unknown of the weather in July and August – it is still likely to be a substantial improvement over the past two seasons, when the global carryover averaged only 22.5% of usage.
To some degree, current price levels have factored in the overly optimistic USDA estimate for the US crop. Perfect weather will erase any price gains in a hurry. On the other hand, bears are also at the mercy of the weather. The upcoming USDA quarterly stocks and acreage reports, as well as the July monthly crop report, will incorporate much more up-to-date information about old-crop supplies and prospects for the new crop.
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