Negative carryout possible | High demand would send prices soaring
One number stood out for Darin Newsom among the plethora of figures contained in two recent U.S. Department of Agriculture reports.
It was the 992 million bushels of soybean stocks in all positions on March 1 in the Grain Stocks report, which is down from 2.15 billion bu. as of Dec. 1.
“To me this is the key number, how low this number came in,” said DTN’s senior analyst.
“We had all-time high demand in the first half of 2013-14.”
The statistic became particularly eye-popping when he used it to calculate stocks as a percentage of total supplies.
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The soybean stocks-to-supply ratio is 29 percent, which means there is only 29 percent of total supplies remaining to sell in the second half of 2013-14.
“Something dramatic has to happen. We have to see this demand shut off,” said Newsom.
The first thing that should occur is cancellations of orders from export customers such as China, which analysts have been forecasting all winter.
“We have to see cancellations. There is absolutely no way we can maintain the pace we’re on,” said Newsom.
“We are eating through our soybean supplies faster than what we have ever done in the past.”
Exporters will be scraping bin bottoms to find enough soybeans to supply fourth quarter orders if demand doesn’t decrease dramatically in the third quarter.
“High price is going to be the only solution to a tightening supply situation,” said Newsom.
“This market really could be ready to explode if we continue to see the type of demand in the second half that we’ve seen in the first.”
Even average soybean demand in the second half of the year would result in a negative carryout.
That’s why Newsom believes soybean prices will rise, which would also lend support to old crop corn prices and new crop prices for a variety of crops.
Corn stocks were seven billion bu., which was on the low end of trade expectations. That works out to a stocks-to-supply ratio of 47 percent, which is fairly low historically.
Corn demand was well above average in the first quarter of 2013-14 but dipped below average during the December-February period.
Shipments for the first half of the year were slightly above average, which gives Newsom hope for the second half of the year.
“We could still see that record demand met here in 2013-14, possibly to the point of exceeding it,” he said.
Wheat stocks March 1were 1.06 billion bu., which was disappointing.
The U.S. wheat marketing year starts June 1. June-August quarter shipments for wheat were high, but sales slowed during the second quarter. Analysts thought third quarter sales would be strong because of Canada’s transportation problems.
Demand needs to pick up in the March-to-May quarter, but Newsom thinks it could be difficult now that Canada’s wheat is back on the rails.
“That could be a problem for some of the U.S. business,” he said.
Newsom wasn’t as interested in the USDA’s Prospective Plantings report, which called for 91.7 million acres of corn, down 3.7 million acres from last year.
He believes that number could climb back as high as 93 million acres if seeding weather is good.
The USDA is forecasting 81.5 million acres of soybeans, up five million acres from last year.
“To rebuild U.S. stocks, we’re going to need more acres,” he said.
Growers expect to plant 55.8 million acres of wheat, which is about the same as last year. Newsom was most interested in the spring wheat forecast of 12 million acres, up 400,000 acres from last year.
He believes that could prove burdensome, given Canada’s expected huge wheat carry out.
U.S. growers are expected to plant 1.7 million acres of canola, up 29 percent from last year, which would be a return to 2012 levels.
Newsom thinks the prediction for a big increase in U.S. soybean and canola acres does not bode well for Canadian canola prices.
“It is possible that we could continue to see some pressure on the canola market,” he said. “It may actually act more like the U.S. bean oil market, which has really struggled, rather than soybeans, which has been supported by this overall tight supply and demand situation.”
