During the past two years soybean exports and domestic crushing have outpaced soybean production in the world’s leading soybean-producing nations, Brazil and the United States, helping to decrease their collective inventory by an estimated 1.2 billion bushels. Now in advance of the greatly anticipated January World Agricultural Supply and Demand Estimates report, we’re looking at the tightest soybean market in six years. Global stockpiles are at 3.1 billion bushels and the stocks-to-use ratio is 23 percent – the least since the 2013-2014 marketing year.
U.S., Brazilian supplies tight
U.S. soybean ending inventory is currently projected at 175 million bushels, with a stocks-to-use ratio of 3.9 percent – the least in six years and the second-least in more than two decades. Brazilian ending stocks are projected at 761 million bushels with a stocks-to-use ratio of 15.6 percent – an increase from the prior year but the second-least in more than two decades. On the back of those tight soybean supplies, the U.S. marketing-year average soybean price is projected at $10.55 per bushel, the best since 2013’s $13 per bushel – and well more than early growing-season expectations of $8.20 per bushel.
These historically tight supplies come in advance of the January World Agricultural Supply and Demand Estimates, which is expected to show increased U.S. soybean-export projections and potentially decreased South American production given recent dry conditions during the growing season.
Soybean exports, ending stocks evaluated
Current Federal Grain Inspection Service data reveals U.S. soybean-export inspections through the week ending Dec. 24 was 1.3 billion bushels, about 61 percent of the December World Agricultural Supply and Demand Estimates export projection of 2.2 billion bushels. The average pace to meeting those projections at this point during the marketing year, before the retaliatory tariffs by China, was about 52 percent. Should that pace hold, a reasonable expectation for soybean exports during the current 2020-2021 marketing year could be in the 2.6-billion-bushel range – 400 million bushels more than the current projections. And given current carryout levels, it’s 225 million bushels more than our projected ending stocks.
Another measure of soybean exports, the U.S. Department of Agriculture export-sales report, shows total soybean-export commitments through the week ending Dec. 17 at a record 1.99 billion bushels, about 201 million bushels less than the current World Agricultural Supply and Demand Estimates projections. Current export commitments represent 90 percent of the projected World Agricultural Supply and Demand Estimates total. Given that the average during the decade before the trade war was 75 percent to World Agricultural Supply and Demand Estimates as of the 16th week of the marketing year, the current pace suggests soybean exports could reach as much as 2.6 billion bushels. That would be a stretch given the current ending stocks level of 175 million bushels. But any adjustment to soybean exports greater than 55 million bushels, while holding all else constant, would result in an ending stocks level of fewer than 120 million bushels and the smallest stocks-to-use ratio in more than two decades.
On the back of strong Chinese demand – $6.8 billion in soybeans purchased in October and November – U.S. soybean-export commitments are at a record number. Following a short crop year in 2019, the United States is on pace to see the smallest soybean carryout and stocks-to-use level since 2013. That, in turn, is expected to lead to the best marketing-year average soybean price since 2013, at $10.55 per bushel.
For bulls any increases in soybean demand in the upcoming January World Agricultural Supply and Demand Estimates, holding all else constant, could push soybean stocks-to-use levels to their smallest percentage in decades. In anticipation of the January report, soybean-futures prices have sharply rallied in recent weeks and are approaching $13 per bushel.
Bears will point to the downside. With increased prices comes the possibility of canceled export sales. While many buyers may lock in prices in advance, current outstanding sales of soybeans are a record 708 million bushels, leaving open the door for buyers to walk away from high-priced and unhedged soybeans. That of course would increase stockpiles, holding all else constant. And should South America receive much-needed rainfall in the coming weeks or the port strike in Argentina comes to an end, the demand for U.S.-sourced soybeans could be reduced – again decreasing prices and increasing stocks.
What’s certain is that all eyes will be on the Jan. 12 World Agricultural Supply and Demand Estimates. Good news will surely lead to beans in the teens in nearby months.
John Newton is the chief economist with American Farm Bureau Federation Market Intel; visit www.fb.org/market-intel for more information.