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U.S. drops soybean ending stocks estimate

Agriculture department is now projecting 190 million bushels of carryout, which reignited futures prices in the market

The U.S. Department of Agriculture’s latest World Agricultural Supply and Demand Estimates report reignited soybean futures prices and there is no letup in sight, says an analyst.

“It dramatically altered the structure of the U.S. balance sheet,” Randy Mittelstaedt, head of RJO Market Insights, said during a webcast organized by the U.S. Soybean Export Council.

The USDA dropped its 2020-21 soybean carryout estimate by 100 million bushels to 190 million bu.

That was well below the average trade estimate of 235 million bu. and a fraction of the 909 million bu. on hand two years ago.

A disappointing harvest and an outstanding export program to China are taking the crop “full circle” from bloated supplies to tight stocks.

There have only been seven other times since 2000 when U.S. ending stocks were forecast to be below 200 million bu. in the October through December WASDE reports.

In six of those cases they came in at the forecast level or lower.

“We’re not too optimistic that we’re going to be finding bushels or that we’re going to see a significant amount of demand rationing that dramatically alters that scenario,” he said.

In fact, Mittelstaedt believes there is further downside potential for ending stocks because exports and domestic crush may come in above the USDA’s current forecast.

He thinks the stocks number could end up at 150 million bu. or less.

“That’s going to continue to support the market significantly,” said Mittelstaedt.

“Be aware that the potential for additional price gains are certainly there, particularly if we see any risks to the South American crop.”

Arlan Suderman, chief commodities economist for StoneX, said soybean prices tend to really escalate when the stocks-to-use ratio drops below seven percent.

The USDA is at a record low of 4.2 percent and is forecasting an average cash farm price of US$10.40 per bu.

Suderman can think of a couple of scenarios where that price could go as high as $13.85 — if the Brazilian harvest is late and China needs to buy more U.S. beans or La Nina wreaks havoc on southern Brazil and Argentina.

Nearby soybean futures prices jumped about 50 cents per bu. following the Nov. 10 release of the WASDE report. The USDA’s average yield estimate of 50.7 bu. per acre was well below market expectations.

Mittelstaedt thinks it could end up 0.5 bu. below that by the final report, which would shave another 30 to 40 million bu. off of production.

He estimates that there is already 30 to 31 million tonnes of sales to China on the books. There is a chance that the U.S. will match the record program of 36.1 million tonnes.

That means exporters would only have to add another five to six million tonnes in sales to China prior to South American supplies hitting the market in February or March.

The USDA forecasts 2.2 billion bu. of total U.S. exports in 2020-21. Exporters already had 80 percent of that on the books two months into the crop year.

They only need to make another 450 to 500 million bu. in sales over the remainder of the crop year to meet the USDA’s target.

Over the past five years they have booked an average of 850 million to one billion bu. of soybean sales over that period.

“We need to see essentially half of the sales that we’ve typically seen through the November through August period,” said Mittelstaedt.

That is not going to be a problem because U.S. soybeans are still cheaper than Chinese soybeans even after the recent price rally.

He also expects strong demand from U.S. crush facilities because crush margins are “very strong.”

There is also concern about Argentina’s crop due to dry conditions. The USDA dropped its Argentina production estimate to 51.5 million tonnes from 53 million tonnes in the latest WASDE.

Argentina is the world’s largest exporter of soybean oil. If it can’t meet all of its customers’ needs, that business could switch to the U.S., although there won’t be a lot of room to increase U.S. crush with only 150 to 190 million bu. of carryout.

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