Soy price unfazed by ending stocks

The U.S. Department of Agriculture expects 425 million bushels of new crop ending stocks in 2020-21, down drastically from 795 million bu. a year ago.  |  Reuters/Daniel Acker photo

Unimpressive China sales, big Brazilian prospects blamed for lower futures despite lower-than-expected ending stocks

The soybean market continues to wait for sustained heavy buying out of China, says an analyst.

Some in the trade feel the U.S. Department of Agriculture’s 2.05 billion bushel export forecast for 2020-21 could be low if China lives up to its Phase 1 agreement commitments.

But so far there is no indication that Chinese buying of U.S. soybeans is going to be exceptional, said Randy Mittelstaedt, head of R.J. O’Brien & Associates, a U.S. brokerage firm.

There were 4.6 million tonnes of new crop sales on the books to China as of July 9. That is well above the pace of the previous three years but about half the level it has been in the past when sales were booming.

That is why the soybean market has had a ho-hum response to the USDA’s forecast for 425 million bu. of ending stocks in 2020-21.

One year ago at this time it was calling for 795 million bu. of new crop ending stocks.

However, today’s November futures contract is trading at US$8.80 per bu. versus $9.30 a year ago.

The market needs to start seeing regular announcements of Chinese purchases of one to two million tonnes of U.S. soybeans instead of the steady but modest sales program that has existed to date.

He is hoping to see some serious buying activity in the October through December time frame.

“If we’re going to see something shocking, it’s going to have to come before next year’s Brazilian crop comes in,” Mittelstaedt said in a webinar organized by the U.S. Soybean Export Council.

Robert Johansson, chief economist for the U.S. Department of Agriculture, recently indicated that the volume of trade with China is indeed expected to pick up toward the end of the calendar year.

“We would expect to see a number of purchases occurring in the fourth quarter of 2020,” he said during the International Grains Council’s virtual annual conference.

Brazil’s soybean exporters have been pummeling the United States in China recently because of a huge crop and the country’s weak currency.

“The shipment pace out of Brazil has been nothing short of unbelievable,” said Mittelstaedt.

In fact, on paper the country appears to be exporting more soybeans than it has, an indication that production has been underestimated the past couple of years.

The good news for U.S. exporters is that Brazil has pushed the limits and will soon be running out of exportable supplies, leading to a big shift to U.S. soybeans during the first half of 2020-21.

But for the time being the market appears to be more focused on supply than demand and things are looking pretty good for the U.S. crop.

Mittelstaedt expects the average yield to top the USDA’s forecast of 49.8 bu. per acre and production to exceed its 4.125 billion bu. estimate unless the July heat persists into August and the rain stops.

Analysts are also forecasting a five percent increase in Brazilian acres leading to another potential “monster crop” from that country.

One other bearish factor to keep in mind is that the USDA is forecasting a 2019-20 residual of -46 million bu.

“The use of a negative residual in the U.S. balance sheet is fairly uncommon,” said Mittelstaedt.

It has only happened three times in the last few decades and each time the production number for that crop was eventually adjusted higher in the Sept. 30 grains stocks report.

In 2003-04 it went up 36 million bu., in 2007-08 it increased 92 million bu. and in 2013-14 it was adjusted by 68 million bu.

“So we do feel that there is a very strong likelihood that last year’s U.S. soybean crop was understated,” he said.

Another bearish factor is that old crop exports to China have been dismal. The U.S. shipped 386,000 tonnes of old crop soybeans to China in May and June versus 2.9 million tonnes the same period a year ago.

There are still 3.3 million tonnes of old crop soybeans already on the books that need to be shipped to China through the end of August but that is starting to look unlikely.

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