Friday, September 13, 2013

Goldman, brokers foresee more cuts to US soy hopes


The latest hike to the official US forecast for the domestic soybean yield will not be the last, according to commentators including Goldman Sachs, which hiked its forecasts for prices of the oilseed by up to $2 a bushel.

The US Department of Agriculture on Thursday, in the highlight of its much-watched monthly Wasde crop report, cut its forecast for the domestic soybean yield by 1.4 bushels per acre to 41.2 bushels per acre, after an unusually hot and dry close to the Midwest summer.

The downgrade, while in line with market expectations, was historically large for a September Wasde report, outpaced only twice in the last 30 years.

And this looks like it will not be the last cut to soybean yield hopes, commentators said, including Goldman Sachs, which highlighted the "potential for further adjustments in similar directions" in the October Wasde report.

'Yield debate'

One factor cited by analysts was the continued dry and hot weather Midwest.

While some rains this week "did bring relief to some areas whose plants are still green, most of the crop is too far gone for the rains to make much of an impact", CHS Hedging said.

At Phillip Futures, Joyce Liu said that "further cuts" in the yield outlook "might be expected for the remaining of the year due to the hot and dry conditions that US soybean crops had been experiencing"

And Steve Kahler, chief operating officer at a Teucrium Trading, an issuer of exchange traded commodity products, told that Corn Belt conditions have been "extremely hot", including a "long stretch of 90-100-degree heat in Minnesota", where he was speaking from.

"There will be a debate over what is happening to yield," for corn as well as soybeans, "in that it has been very hot with limited rain," Mr Kahler said.

Weight vs count

Other analysts highlighted Wasde methodology, with Richard Feltes at RJ O'Brien saying that investors were grappling with the USDA's use of its "second-lowest soybean pod count [figure] in a decade, but second-highest pod weight".

Another broker pointed out that "this year the USDA appears to also be using a large pod weight factor.

"If this happens to be overdone and pod counts are as low as they say they are, we could see some more room for final yield to decline."

'Unusually high uncertainty'

Goldman said that "given weather conditions, there is a strong likelihood that the USDA lowers its soybean pod weight assumption, and in turn its soybean yield".

It lifted its forecast for corn yields in the three-month horizon by $2 a bushel to $12.50 a bushel, and in the six month timescale by $1 a bushel to $11.50 a bushel.

"Uncertainty over the size of the US corn and, especially, soybean crops remain unusually high for this time of year," the bank said.

While imminent data on farmer insurance claims for abandoned acres and on US crop inventories "help lift these supply uncertainties in coming weeks, the distribution of potential outcomes remains wide and will likely continue to support prices".

'Way up in the air'

However, some analysts did take a more cautious view of this uncertainty, with Darrell Holaday at Country Futures, saying that analysis of the varied state-by-state data indicated that the USDA had had "a difficult time" drawing up its soybean yield estimate.

"This number is way up in the air. It is generally supportive, but the soybean yield is still very much a wild card in either direction," he said.

CHS Hedging, while flagging the weather setbacks, said that the updated USDA yield estimate "should take some of the worst case scenarios, sub-40 bushels per acre, off the table".

Allendale last week unveiled an estimate of 39.0 bushels per acre for the yield, drawn from a farmer survey.

Not so bullish…

Furthermore, Goldman's forecasts remain well below the futures curve, with Chicago January futures, for instance, trading at $13.99 ½ a bushel on Friday.

"While we see upside risk to current prices given downside risks to US production, we ultimately believe that lower US exports and another large increase in South American soybean acreage and production will leave US inventories above last year's level and prices below the current forward curve," the bank said.

Goldman also kept its forecasts for corn futures at $4.25 a bushel, again a figure below the futures curve, reflecting an expectation that the US yield will end up at 157 bushels per acre, above the upgraded USDA forecast of 155.3 bushels per acre.

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