Thursday, September 5, 2013

Caution on soy prices despite waning US crop hopes


Brokers queued up to warn against expectations of higher soybean prices, even as hopes for the US harvest continued to come into question, with Macquarie the latest to lower its forecast for the US yield.

Macquarie cut to 40.9 bushels per acre, from 42.5 bushels per acre, its forecast for the US soybean yield, citing the setbacks to prospects from dryness in Illinois and Iowa, the top producing states.

"There still does though remain risk to the downside of our current yield estimate, with limited potential upside," Macquarie analyst Chris Gadd said.

"If we see no precipitation through the next 1-2 weeks in this region [eastern Iowa and western Illinois], we could though see the prospect of the national average yield in the US falling towards the 40-bushels-an-acre level."

The downgrade is the latest in a series from brokers, such as Lanworth, this week, with FCStone overnight pegging the yield at 41.2 bushels per acre, and an Allendale survey showing a figure of 39.0 bushels per acre, which would represent a fourth successive year of decline.

The US Department of Agriculture pegs the yield at 42.6 bushels per acre, although its estimates are up for review ahead of next week's monthly Wasde world crop supply and demand report.

'Aggressive expansion'

Nonetheless, despite the downgrade, Macquarie warned against forecasts of higher prices, flagging the role of rising prices in encouraging South American farmers to raise plantings of the oilseed, and for users to ration supplies.

US soybean yield and (production) estimates this week

FCStone: 41.2 bushels per acre, (3.146bn bushels)

Reuters poll: 41.1 bushels per acre

Macquarie: 40.9 bushels per acre, (3.104bn bushels)

Michael Cordonnier: 40.5 bushels per acre

Lanworth: 40.4 bushels per acre, (3.115bn bushels)

Allendale: 39.0 bushels per acre, (2.980bn bushels)

"The market has been too willing to price in the most pessimistic views and we would be bearish from current levels in all but the most extreme scenarios," Mr Gadd said.

Macquarie forecast Brazil's soybean output hitting a record 87.0m tonnes in 2013-14, with the recovery in price meaning farmers - for whom costs of producing and developing marginal land in Mato Grosso have fallen to $11.70 a bushel thanks to a depreciating currency – should "expand aggressively".

The Brazil harvest forecast is above that from many other commentators, including the USDA, which pegs the crop at 85.0m tonnes.

Seasonal cycle?

Caution over soybean prices was also voiced by commentators such Darrel Good, professor in the agricultural and consumer economics department at the University of Illinois, who said that the potential for another disappointing US soybean meant that futures should echo their path of last year.

"Soybean prices are expected to unfold in more of a short-crop pattern like that of last year," he said.

"Under such a pattern, prices would be expected to peak very early in the marketing year in order to discourage consumption and decline as the year progresses, particularly if the South American crop is large again in 2014."

'Treading water'

At broker RJ O'Brien, Richard Feltes said that "we believe that highs for Chicago November soybean futures for now are in.

A "broad trading range of $12.60-13.60 a bushel will define trade until actual harvest results clarify if the 2013 US soy yield is under 40 bushels per acre".

The soybean market "is treading water awaiting reliable ground truth on the 2013 US soy crop size".

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