High prices may sideline more U.S. soybeans, according to the U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates report.
USDA’s estimate for U.S. soybean ending stocks for the current and following marketing year rose by 15 million bushels in June to 135 and 155 million bushels, respectively. While not surprising, according to Mac Marshall, vice president of Market Intelligence for the U.S. Soybean Export Council and United Soybean Board, the change is the first move USDA made to ending stock figures in the past four months.
“Today’s move by USDA was warranted,” said Randy Mittelstaedt, head of Market Insights for R.J. O’Brien. “We started the year incredibly strong. Then the balance sheet started tightening up significantly with domestic supply.
“The market is doing its job by telling industry to slow down the crush because we don’t have the supply.”
Marshall and Mittelstaedt shared their analysis of the June WASDE report in a recent briefing hosted by USSEC. The full conversation is available here.
The WASDE report, which provides a comprehensive forecast of supply and demand for major crops globally, attributed the soybean ending stock increase to a lower domestic crush forecast due to increased price pressure.
Given tight domestic supply, soybean oil production was reduced by 135 million pounds (60,000 MT) and soybean meal production was reduced by 200,000 short tons (181,000 MT). U.S. domestic soybean oil use increased by 225 million pounds (100,000 MT), though the increase was in the food and industrial space, not in biofuels, which was a new line item introduced by USDA in May.
“There may still be some downside realized on USDA’s crush numbers,” added Mittelstaedt. “We could probably trim another 10 to 15 million pounds off its estimate.”
With a reduced crush rate, USDA increased price projections for soybean oil by another $0.04 per pound to $0.59. Marshall suggested oil value is becoming the primary driver for pricing. Traditionally, soybean meal demand has driven commodity pricing, but the increased use of soybean oil in food, as well as pressure from the biofuels sector, has pushed the value of soybean oil higher.
“Soybean oil is driving crush prices right now,” said Mittelstaedt. “That’s probably going to stay in place for the next couple of years because of the push for biofuels and renewables. Just over the past couple of months we’ve had announcements for new crush plants and expansions at existing facilities.”
Although supplies tightened in the U.S. and globally, demand persists for U.S. Soy. WASDE projects near-record export figures for the current marketing year, as well as a significant harvest for U.S. Soy in 2021. WASDE left soybean production estimates unchanged at 4.405 billion bushels, based on a national average of 50.8 bushels per acre.
Although Marshall highlighted USDA’s soybean production figure as unchanged, Mittelstaedt suggested it was too early to celebrate. He expects this to be one of the more volatile summers because every bushel is critical.
Every Bushel Matters
“There’s zero supply cushion for the United States,” he said. “We’ve had yields range from 47-50 over the past three to four years, and every bushel change is worth 90 million bushels to the overall crop.”
Mittelstaedt further indicated this could be a “big weather market.”
“We’re in the throes of watching the weather because there’s no room for below trendline crop conditions,” he said. “Every day’s forecast is critical now.”
USDA will release a revised acreage report June 30 with commodity planting estimates, which should bring the 2021 crop into focus, according to Marshall. Mittelstaedt suggested USDA’s March figures underestimate the soybean acres planted by 1 to 1.5 million acres.
“The acreage number is going to be critical at the end of the month,” said Mittelstaedt. “All the indicators suggested farmers should have planted every acre available. We need to see if those acres play out in the data.”
On the global front, USDA raised Brazilian soybean production estimates to a record 137 MMT versus 136 MMT a month ago. Argentine production estimates remained unchanged. Old-crop world ending stocks rose by 1.2 MMT to 88 MMT, while new-crop ending stocks moved up by 1.5 MMT to 92.6 MMT. The report made no changes to Chinese demand.
USDA left price forecasts unchanged for U.S. Soy crop.
The WASDE is published monthly. Traders, farmers and soy processors around the world refer to the WASDE report as an indicator of where supply and demand, and ultimately the price may go.