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Numbers Review: Bearish Soybean

Saturday, December 1, 2012
filed under: Marketing/Risk Management

By Mike Krueger

USDA’s November crop production estimate was bearish soybean. The yield projection was increased another 1.5 bu/ac from the October report. The yield increases in October and November have now increased U.S. 2012 soybean production by more than 300 million bushels since the September report.

It is apparent that August and September weather across much of the Corn Belt improved enough with some rain and cooler temperatures to give soybeans a very good finish to an otherwise poor Corn Belt season. The good news in the USDA numbers came in the demand estimates included in the supply and demand revisions. USDA has increased the export and crush forecasts for soybeans in each of the past two monthly reports. The net result is that even though soybean production has increased more than 300 million bushels, the ending supply estimate has only increased 10 million bushels and is still very tight. The difference is that the rationing process may not be as difficult as expected. Soybean export sales and monthly crush numbers, however, are still exceeding even the most recent USDA forecasts and that should mean the demand numbers will have to go up again.

There will be no changes to the production estimates in December. The “final” soybean estimates will not be released until January. There are still questions about soybean planted and harvested acreage. The USDA made no changes to the harvested acreage number in the November report. They won’t include changes until January, if at all. Some analysts still believe the harvested acreage number should be reduced by at least two million acres because of some very poor double-cropped soybeans across parts of the Corn Belt and Southern Plains. We have clients in south central Illinois who have told us they harvested none of their double-cropped soybeans.

It had been a very wet start to the soybean planting season in Argentina and southern Brazil, while it was too hot and dry in central and northern Brazil. This had delayed planting in both countries. Weather did improve during the first half of November; however, there are still some concerns about extended weather forecasts that continue to look too wet for the southern region and too dry for central and northern Brazil.

The trade is counting on record soybean acreage and yields in both Argentina and Brazil. The latest USDA production forecast for Brazil and Argentina is for a crop more than 30% larger than last year’s drought-reduced production. A 30% increase is a very aggressive number, but the USDA is not alone. Other analysts are expecting similar numbers.

Soybean futures prices are now down nearly $4.00/bu from the all-time high (almost $18.00) set the day of the August USDA reports. The collapse was triggered by the increased crop production estimates plus the slightly better weather pattern in South America. Fund liquidation then created very negative technical patterns, and that, in turn, triggered even more selling. It will take continued strong demand plus some adverse weather in South America to rally prices back to the August high. The demand should be there. If we were not rationing demand with soybeans above $17, there is no way we are rationing demand at $14.

Vegetable oil prices have been similarly weak with big palm oil supplies pushing prices sharply lower. U.S. soybean oil export sales, however, are running well ahead of forecasts. That should eventually be positive for sunflower prices. But, often as soybeans go, the other oilseeds follow.

The sunflower harvest is basically finished — and it was a big one. Like North Dakota’s corn and soybean yields, the sunflower yields were much better than expected. It is likely USDA will increase the yield and production estimates in their final January report. The big crops created storage problems, and it will take time to get the excess that is piled outside or in temporary storage handled. That will keep at least a temporary lid on the market.

Mike Krueger is owner of The Money Farm, a grain marketing consulting firm. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no liability for its use.
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