Government and private analysts are far apart in their estimates of the declining size of the Brazilian soybean crop.
But that doesn’t really matter, says a Winnipeg canola futures broker. The market is still being led by demand.
“I don’t think that a million or two (million) tonnes in the South American market has been anything more than a minor background factor in this market,” said Ken Ball of Benson Quinn GMS.
“You often hear about it, but that’s because it’s the only news of the day.”
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On March 10, the United States Department of Agriculture lowered its estimate of the Brazilian soybean crop by 1.5 million tonnes from its February estimate. But that still leaves it far above private industry forecasts of a crop of 54-57 million tonnes. The USDA predicts a 59.5 million tonne crop.
The market reacted mildly to the USDA numbers. Ball said that was probably because strengthening soybean prices were being propelled by healthy U.S. domestic and export demand.
“The real issue is domestic consumption,” Ball said, noting the soybean crush has barely slowed despite high soybean prices.
Many factors at play
Soybean prices have been relatively high through the winter, and tight supplies suggest that will continue.
The USDA report also forecast that China will reduce its imports by about 1.5 million tonnes because of high prices.
For weeks, news reports about the soybean market have focused on Brazil’s crop and weather problems affecting harvest. But there are no signs that the crop will be radically smaller than expected, Ball said.
“Most believe their crop will be two to four million tonnes off of peak potential, which never was really 61 million tonnes,” Ball said.
The spread between private and USDA forecasts might be explained by USDA caution following a pattern of Brazilian crops being bigger by the end of harvest than expected early in harvest, Ball said.
“Their crop numbers tend to nudge higher right at the end of the season,” said Ball.
That might be partly due to poor forecasting within Brazil itself, which is not as rigorous as the U.S. in gathering production data.
Also, large acreages of new cropland are being opened each year in Brazil, so no one really knows soybean production until the crop is in the bin.
The USDA report also found that U.S. wheat stocks are about 272,000 tonnes bigger than most analysts expected, but world wheat stocks are down by 1.02 million tonnes from its previous estimate.
At 124.93 million tonnes, world wheat stocks at the end of 2003-04 will be the lowest since 1981-82, if USDA predictions are accurate.
