KSU Soybean Market Outlook: Price Prospects as of early June 2016

An analysis of U.S. and World soybean supply-demand factors and June-Dec 2016 and early-mid 2017 price prospects following the USDA’s May 10th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports and the market actions that have followed them – available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary – with the full analysis-article for soybeans to be found at this web location:  http://www.agmanager.info/marketing/outlook/newletters/Soybeans.asp

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Summary

Overview

Since the USDA released its World Agricultural Supply and Demand Estimates (WASDE) report on May 10th, soybean futures prices have been up and down, but since May 24 have trended moved sharply higher.  From mid-August through early-April 2016 CME JULY 2016 soybean futures prices traded in a range of $8.59-$9.35 – being limited by the current “large crop – low price” scenario that existed in U.S. and World soybean markets, caused by consecutive record 2014, 2015 and projected large 2016 South American and U.S. soybean crops.  However, beginning in early April significant crop production problems have occurred in key South American production areas such as Argentina and parts of Brazil along with worries about summer 2016 weather conditions in the U.S. Corn Belt and surprising strength in World soybean trade – causing CME JULY 2016 soybean futures prices to climb from a close of $9.25 on April 8th to a high of $11.69 on June 3rd, with a close of $11.38 ¼ on June 6th – a gain of $2.13 ¼ in just under two months.

Longer Term World Soybean Market Trends

Longer term, since MY 2008/09 a strong upward trend in World soybean production (up 6.6% annually) has “out-paced” the increase in World soybean use (up 5.9% per year), leading to record World soybean ending stocks and growth in percent ending stocks-to-use, and consequently to a dramatic reduction in soybean price prospects in the “current” and anticipated “new” crop years.  However as pointed out above, this trend has begun to “abate” in “current” MY 2015/16 and “new crop” MY 2016/17, which may help provide at least moderate support for U.S. and World soybean prices.

Since World soybean ending stocks of 62.0 mmt (22.5% %S/U) in MY 2013/14, stocks grew sharply in MY 2014/15 to 78.1 mmt (25.9% S/U), but have since declined to an estimate of 74.25 mmt (23.3% S/U) in “current” MY 2015/16, and are forecast to decline further to 68.2 mmt (20.8% S/U) in “new crop” MY 2016/17.  A key issue in World soybean markets for the remainder of calendar year 2016 will be to determine whether any weather or disease problems end up driving U.S. soybean production low enough to alter the existing “large supply – buyer’s market” situation that has existed in U.S. and World soybean markets in recent years, or if a large 2016 U.S. soybean crop will add to and exacerbate the current low price situation in fall 2016.

USDA U.S. Soybean Forecast of “Current” MY 2015/16

The USDA maintained its forecast 2015 U.S. soybean production of a record 3.929 billion bushels (bb) – up marginally from 3.927 bb in 2014.  For “current” 2015/16, USDA projected U.S. total supplies at a record 4.150 bb (vs 4.052 bb in MY 2014/15), crush at 1.880 bb (up 10 mb from April), exports at 1.740 bb (up 35 mb from April and up 50 mb from March, but still down from the record 1.843 bb in “current” MY 2014/15), total use at 3.750 bb (up 45 mb from April, but less than the record of 3.862 bb in MY 2014/15), and ending stocks at a 9-year high of 400 mb (down 45 mb from April, but still up from 191 million bushels or ‘mb’ in MY 2014/15, and from 92 mb in MY 2013/14).   Ending stocks-to-use are projected at 10.67% – down from 12.01% in April, but still up dramatically from 4.95% in MY 2014/15, and the record low of 2.65% in MY 2013/14.  The USDA forecast “current” MY 2015/16 U.S. soybean average prices to be $8.85 /bu – down from $10.10 in MY 2014/15, $13.00 in MY 2013/14, and the record high of $14.40 in MY 2012/13.

USDA Forecast for “New Crop” MY 2016/17

The projected 2016 U.S. soybean plantings of 82.236 million acres (ma) – down 414,000 acres from 2015.  Forecast 2016 harvested acres of 81.370 ma is calculated from projections of production and average yields, and is down 479,000 acres vs 2015.  With projected yields of 46.7 bu/ac, 2016 U.S. soybean production is projected to be 3.800 bb – 3rd highest on record behind 3.927 bb in 2014 and 3.929 bb in 2015.   With forecast “new crop” MY 2016/17 total use of 3.925 bb (2nd highest behind 3.862 bb in MY 2014/15), and projected ending stocks of 305 mb (7.78% S/U), U.S. soybean prices were estimated by the USDA to be in the range of $8.35-$9.85 (midpoint = $9.10 /bu) – down from the $8.85 /bu in “current” MY 2015/16 and $10.10 in MY 2014/15. This USDA projection is thought to have a 35% probability of occurring in the judgment of Kansas State University Extension Grain Marketing analysis.

KSU Forecasts for “New Crop” MY 2016/17

Three alternative KSU-Scenarios for U.S. soybean supply-demand and prices are presented for “new crop” MY 2016/17, with each assuming a 1.000 ma upward adjustment in 2016 U.S. soybean planted acres from the USDA’s March 31st Prospective Plantings and the May 10th WASDE reports.

A) KSU “Higher Acres & Trend Yield” Scenario (30% probability) assumes for “new crop” MY 2016/17: 83.236 ma planted, 82.242 ma harvested, 45.85 bu/ac trend yield, 3.771 bb production, 4.201 bb total supplies, 3.871 bb total use, 330 mb ending stocks, 8.52% S/U, & $9.25 /bu U.S. soybean average price;

B) KSU “Higher Acres & Moderate Drought Stress” (25% prob.) assumes 83.236 ma planted, 82.242 ma harvested, 44.0 bu/ac yield, 3.619 bb production, 4.049 bb total supplies, 3.776 bb total use, 273 mb ending stocks, 7.72% S/U, & $9.65 /bu U.S. soybean price; and

C) KSU “Higher Acres & Serious Drought Stress” (10% prob.) assumes 83.236 ma planted, 82.242 ma harvested, 39.0 bu/ac yield, 3.207 bb production, 3.637 bb total supplies, 3.451 bb total use, 186 mb ending stocks, 5.39% S/U, & $11.00 /bu U.S. soybean price.

World Soybean Supply-Demand

World soybean supplies have been growing in recent marketing years, but usage has grown at an equal or greater pace.  These trends have led to the result that both ending stocks and percent ending stocks-to-use have declined in both “current” MY 2015/16 and “new crop” MY 2016/17 – a positive sign for future price trends in World soybean markets.

Specifically, World total supplies of 398.45 million metric tons (mmt) are projected for “new crop” MY 2016/17, up 1.1% from 393.9 mmt in “current” MY 2015/16, and up 4.4% from 381.7 mmt in MY 2014/15.  World total use of 328.0 mmt are projected for “new crop” MY 2016/17, up 3.1% from 318.2 mmt in “current” MY 2015/16, and up 9.0% from 300.9 mmt in MY 2014/15.  Consequently, projected World soybean ending stocks of 68.2 mmt (20.8% S/U) in “new crop” MY 2016/17 are down 8.1% from 74.25 mmt (23.3% S/U) in “current” MY 2015/16, and from 78.1 mmt (25.9% S/U) in MY 2014/15.

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