This past week we looked at the U.S. corn ending stocks situation, as well as a few scenarios for what 2019 might have in store. This week we consider the same for soybeans. While the methods used for the two posts are the same, the situation and outlook are quite different.
Soybean ending stocks large now
Before thinking about 2019-2020, it’s important to review where soybean endings stocks currently stand. For the crop harvested this past fall, the 2018-2019 marketing year, soybean ending stocks are expected to account for 22 percent of usage. That marks the greatest stocks-to-use ratio observed since the farm financial crisis, when stocks reached 29 percent of use – 1985-1986.
Figure 1, which shows U.S. soybean ending stocks since the mid-1960s, captures just how historically significant current soybean ending stocks are. Only two other times in 55 years of history have soybean ending stocks exceeded current levels.
Figure 2 shows the data for ending stocks to use since the 1990s. That chart captures the contrast between depressed stock during the farm-economy boom and current increased levels. For many years stocks were near – or less than – 5 percent of usage. After climbing to 10 percent of use in 2017-2018, the combination of the trade war, large soybean acreage and large yields ultimately sent soybean stocks to more than 20 percent.
Figure 2 also plots the average for the ratio of U.S. soybean ending stocks to use since 1990-1991. At 9.2 percent – in black – the average soybean-stocks ratio is well less than the average corn ending stocks ratio – at 13.8 percent – during the same time period.
Soybean outcomes likely not good
As we did for corn, we also considered different scenarios of soybean yields and usage in 2019-2020 to think about possible ending stock outcomes.
A baseline yields of 49.2 bushels per acre was used, along with a lesser-range expectation of 47.4 – the 25th percentile – and an inflated-range expectation of 50.5 bushels – 75th percentile. The U.S. Department of Agriculture’s March Prospective planting report and an average share of harvested acres were used for the acreage assumption. At this point final acres, prevented planting and harvested acres are all sources of variation, but not directly included in the scenarios.
For soybean usage a base scenario of 4.2 billion bushels was used. As a benchmark, soybean usage for 2018-2019 is currently estimated at 4.1 billion bushels. Alternative usage outcomes at 5 percent less than and 5 percent more than the baseline were considered. As we noted in earlier usage posts, deviation from trends of plus-or-minus 5 percent are historically more common for soybeans than corn.
Consistent with corn, the extreme cases – depressed usage-greater yields – top right – and inflated usage-depressed yields – bottom left – were omitted as we’d expect the potential for extreme price swings.
With an expectation of U.S. farmers planting fewer soybean acres in 2019, the prospects of lesser ending stocks – less than than forecasted 2018-2019 levels of 22 percent – exist in many of the scenarios considered. The baseline conditions – trend yields at 49.2 bushels per acre and trend usage at 4.2 billion – would decrease ending stocks to 19.2 percent. That’s an improvement, but not significant enough to provide producers with an improved price outlook.
For a modest improvement in the soybean-stock situation, a depressed-yield or greater-usage event would be necessary. Keep in mind even the lesser-stock outcomes shown in Table 1 – 13.8 percent to 15.7 percent – remain more than the sub-10 percent levels experienced in recent years and the long-run average-stocks levels. It will likely take a combination of factors – less production and increased usage – for a chance at significant improvements in 2019-2020.
Figure 3 combines the data of Figure 2 with the scenarios from Table 1. That chart reinforces that even though one can be hopeful for improvements in the soybean-ending-stock situation, the range of considered scenarios still leaves the soybean-stock situation unpleasantly inflated. While significant improvements in the soybean-stock situation isn’t a zero-chance event for 2019-2020, the most likely scenario is that soybean stocks take several years to adjust toward the long-term average of 9.8 percent of usage.
Wrapping it Up
A combination of big acreage, large yields and a trade war pushed soybean ending stocks toward historically inflated levels in 2018-2019. At 22 percent of usage, soybean ending stocks are at the third-worst levels in 55 years of data. That has been a significant struggle for commodity prices and producer returns. No matter how one slices the data, soybeans are in a difficult spot.
Considering different possible outcomes for usage and production for 2019-2020 provides perspective about where ending stocks might settle. While several scenarios point to a decline in ending stocks, the improvements remain historically inflated. Even the most aggressive outcomes considered in Table 1 leave soybean stocks at well more than the long-run average. It will take extremely short production and increased usage for soybean ending stocks to decrease to less than 10 percent in 2019-2020.
It’s also important to note corn’s situation is much different and improved from that of soybeans. While soybean ending stocks are at the inflated end of the historical range, corn ending stocks are in-line with the long-run average of 14 percent of usage. Some solace can be taken in that only one of the two crops are at historically inflated levels.