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(September 26, 1997) SOYBEANS: On September 12th, USDA released their crop estimate of 2.746 billion bushels (record), based on conditions as of September 1st. This estimate was very close to the previous estimate of 2.744 billion on August 12th. The average trade guess was 2.750 billion, basically this report was in line with most estimates and was considered neutral to prices. Extremely tight old-crop supplies, and excellent demand have firmed prices, despite new-crop harvest being right around the comer.
USDA Supply/Demand For U.S. Soybeans
(Released September 12th)
1997/1998 August September (Mln. Acres) Planted 70.9 70.9 Harvested 69.8 69.8 Yield 39.3 39.3 (Mln. Bushels) Beginning Stocks 125 115 Production 2744 2746 Imports 5 5 Total Supply 2874 2866 Crushings 1485 1495 Exports 945 950 Seed 74 74 Residual 65 61 Total Use 2569 2580 Ending Stocks 305 285 Stocks/Use 11.9% 11.1%
PRODUCTION–The only state to decline yield (2 or more bushels) from the largest producing states is Indiana, which showed a 2-bushel- per-acre (10.7 million bushels) decrease from the August report due to the second smallest pod count in 5 years. The leading states that showed major yield increases were Missouri at 3 bushel per acre (14.6 million). The USDA kept the two largest states of Illinois and Iowa at unchanged levels. The USDA reported record pod counts for both Iowa and Nebraska and the second highest for Illinois. The question now lies with pod weights to determine the final production. It appears that the weather has been favorable to pod filling and an increase in the October report could be expected. Since 1978, history has shown that in years (9) when the September Crop report is equal or larger than August report, that the October report increased 6 times. The average increase of those 6 years was 37 million bushels. The 3 years, 1981, 1993 and 1995 which showed a decline, came from a late-planted crop which experienced some freeze damage. Very little harvest results are in, but some early cutting in the eastern Corn Belt has been encouraging.
DEMAND–This is the bright spot of the complex and is keeping the record crop from building burdensome ending stocks. The crush is expected to be increased over last year's record by 60 million bushels to 1.495 billion. The processing industry will need to run at nearly 90% of capacity for the first 6 months to reach this estimate. The large increase in crush is due to the record demand for products and the very profitable crush margins. The demand for meal is expected to be increased by 1.7 mmt, due to increased animal consuming units and a strong export market. The meal export market is being led by an 11% increase to China.
Oil demand will be increased by 500 million pounds, with increases coming at both the domestic and export sectors. The only question regarding the crush estimates stems from the large crush margins, where leading importers may wish to import the raw soybean and crush them locally.
The export projection of 950 million bushels will exceed the old record of 929 million bushels set in 1986. The record export sales for the start of the New Year is the major catalyst for such strong projections. It is estimated that we will have record exports to both China (3 mmt) and Brazil (2 mmt). If we reach these projections, the key will be the size of the South American crop.
WORLD SUPPLY AND DEMAND–We will be producing a record large soybean crop this year at 147.4 mmt, surpassing last year's production by 16 mmt. Demand is being pegged at a record 141 mmt for the United States. This record demand will only allow ending stocks to increase by a small 6 mmt to 18.7. The USDA is estimating that both the Brazilian and Argentine crop will expand by a total of 4.2 mmt. There has been much talk about El Nino and how it will effect the growing season in South America. Past history has shown that in 5 of the last 6 El Nino years, Brazil has produced 2 record yields and the other year's have been close. The growing season must be monitored, as any crop problems will have a major price impact with the strong demand picture.
PRICE OUTLOOK–The current price rally in the soy complex is led by the tight old crop, as new contract highs have been scored in both September beans and meal. The strong demand is providing support, as the harvest pressure has not occurred yet. When prices retreated to the contract low ($5.77) it was under the premise of ending stocks to be near 400 million. The current projection of 285 million ending stocks will support prices under $6.15. The problem with a price rally is the sheer size of the crop, the lack of forward sales by the producer, and poor seasonals. The cash basis is very strong, along with tight spreads, which is telling the producer to sell the cash and if bullish buy the board or options. I feel we are in a trading range between $6.55 and $6.15. The trading volume at the Board of Trade has been light and is a good indication of the lack of market conviction that currently persists regarding specific price direction.
Doug Price
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