S. American soy crop likely to shrink

Analysts believe it is only a matter of time before the USDA lowers its production estimates for Brazil and Argentina

Analysts believe the United States Department of Agriculture is kicking the can down the road when it comes to downsizing South America’s soybean production.

The USDA left production unchanged at 133 million tonnes for Brazil and 48 million tonnes for Argentina in its February World Agricultural Supply and Demand Estimates report.

Mac Marshall, vice-president of market intelligence with the U.S. Soybean Export Council (USSEC), said the pre-release consensus was that there would be downward revisions for both countries.

“Do you think the USDA is adopting kind of a wait-and-see approach?” he asked his market analyst guest during a USSEC webinar.

“Maybe there will be some reconciliation in subsequent releases?”

Michael Liautaud, manager of education and research with Commodity and Ingredient Hedging, thinks that is a safe bet.

“I think so. Absolutely,” he said.

He noted that the USDA dropped its U.S. crop estimate by 290 million bushels between the August and December reports.

The USDA’s justification is that while Argentina’s cumulative precipitation has been well below the 30-year average, it has received timely showers and below-normal temperatures. That is despite a La Nina forecast for hot and dry weather.

It says this year compares to 2010-11, which was another season that had minimal La Nina impacts.

The story is much the same for Brazil, where cumulative rainfall has been well below the 30-year average but still adequate for most major production areas of Mato Grosso.

However, soybean maturity is running behind last year, which means a later harvest and slower movement to port. Ships are already lined up in Brazilian ports waiting for more than 11 million tonnes of product.

The USDA is expecting a quick drawdown in Brazilian supplies through October.

“Consequently, U.S. producers would face limited competition from Brazilian exports at harvest, similar to the situation observed in the last quarter of 2020,” stated the USDA.

Liautaud said it is interesting that the USDA’s Economic Research Service is using 2012-13 as the marketing year in its econometric model to project South American corn and soybean yields. That was a severe drought year.

Arlan Suderman, chief commodities economist with StoneX, thinks the USDA’s Brazil estimate is correct.

StoneX polled its customers in Brazil and came up with a forecast of 132.77 million tonnes.

But he takes issue with the USDA’s Argentina forecast. StoneX believes it will be closer to 46 million tonnes.

Crop ratings have been very disappointing in Argentina’s main soybean growing regions and European weather models are forecasting a hot and dry February in those areas, further threatening the crop.

The USDA is forecasting 120 million tonnes of U.S. soybean carryout in 2020-21, down from its January forecast of 140 million tonnes.

Suderman thinks it will be closer to 115 million tonnes. And he thinks the U.S. will have to import 55 million tonnes of soybeans from Brazil and Canada, which is 20 million tonnes more than the USDA is forecasting.

He thinks soybean prices are going to need to move higher this summer to ration U.S. crush demand for the crop.

Liautaud noted that the USDA has projected 2.25 billion bushels of U.S. soybean exports for 2020-21. Exporters have already sold 2.155 billion bushels, so he agrees that prices will have to rise to ration demand.

Suderman is forecasting 90.5 million acres of U.S. soybeans in 2021, up from 83.1 million acres last year.

But even at that inflated level he is forecasting identical carryout and the same paltry 2.5 percent stocks-to-use ratio in 2021-22 as he is estimating for this year.

That would result in an average cash farm price of nearly US$14 per bu., so another strong year ahead for the soybean and broader oilseed complex.

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