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 June 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
Recent Soybean Futures Price Action
Since the USDA released its World Agricultural Supply and Demand Estimates (WASDE) report on June 10th, soybean futures prices have declined. Since March 2, 2016 when CME JULY 2016 soybean futures prices closed at $8.67 ¾, prices have trended upward to a high of $12.08 ½ on the day of the release of the June 10th WASDE report – closing at $11.78 ¼ that same day. Since then, CME JULY 2016 soybeans declined to $10.99 ¼ on Friday, June 24th before closing at $11.03 /bu that same day.
Soybean Market Perspective
Since 2014, World soybean market prices have been limited by an ongoing “large crop – low price” regime, caused by consecutive record World soybean production years for 2014 and 2015, with another record crop projected for 2016 in South America and the United States. However, in March-early June 2016, significant soybean production problems have occurred in key South American production areas such in Argentina and parts of Brazil – along with a heightening of trade concerns about summer 2016 weather conditions in the U.S. Corn Belt. These emerging World soybean production concerns have helped to strengthen U.S. soybean export trade in the “current crop” 2015/16 marketing year (ending August 31, 2016) and improved the outlook for U.S. soybean exports in “new crop” MY 2016 (starting September 1, 2016).
Longer term, from MY 2008/09 to projected “new crop” MY 2016/17, the USDA forecasts a strong upward trend in World soybean production (up 6.6% annually) which will have “out-paced” the increase in World soybean use (up 5.9% per year) if it holds true. However, the shortfall in South American’s soybean production in “current” MY 2015/16 has at least temporarily interrupted these trends, and has caused projected World soybean ending stocks and percent ending stocks-to-use to fall since MY 2014/15. As this trend toward larger supplies has “abated” in “current” MY 2015/16 and for projected “new crop” MY 2016/17, U.S. and World soybean prices have received at least moderate support. These trends are illustrated in that 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 78.3 mmt (25.9% S/U), but have since declined to an estimate of 72.3 mmt (22.7% S/U) in “current” MY 2015/16, and are forecast to decline further to 66.3 mmt (20.2% S/U) in “new crop” MY 2016/17.
Key Market Issue to Address for Remainder of 2016
A key World soybean market issue will be to determine whether 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 “rectify” this short run trend toward lower World soybean ending stocks and lead to a re-establishment of the “large supply – low price” situation in fall 2016 that had existed during the 2014-2015 time period.
USDA U.S. Soybean Forecast of “Current” MY 2015/16
As usual at this time in the marketing year, 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), domestic crush at 1.890 bb (up 10 mb from May and 20 mb from April), exports at 1.760 bb (up 20 mb from May and 70 mb from March – but still down from the existing record 1.843 bb in “current” MY 2014/15), total use at 3.780 bb (up 30 mb from May – but less than the record of 3.862 bb in MY 2014/15), and ending stocks at a 9-year high of 370 mb (down 30 mb from May, and 75 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 9.79% – down from 10.67% in May and 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 $9.05 /bu – up $0.15 from May, but still 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 U.S. Soybean Forecast for “New Crop” MY 2016/17
The USDA 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 3.940 bb (a new record high ahead of 3.862 bb in MY 2014/15), and projected ending stocks of 260 mb (6.60% S/U), U.S. soybean prices are estimated by the USDA to be in the range of $8.75-$10.25 (midpoint = $9.50 /bu) – down from the $9.05 /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.
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 June 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, 4.171 bb total supplies, 3.915 bb total use, 256 mb ending stocks, 6.54% S/U, & $10.25 /bu U.S. soybean average price;
B) KSU “Higher Acres – Moderate Drought” (20% prob.) assumes 83.236 ma planted, 82.242 ma harvested, 44.0 bu/ac yield, 3.619 bb production, 4.019 bb total supplies, 3.801 bb total use, 218 mb ending stocks, 5.74% S/U, & $10.75 /bu U.S. soybean price; and
C) KSU “Higher Acres & Serious Drought” (15% prob.) assumes 83.236 ma planted, 82.242 ma harvested, 39.0 bu/ac yield, 3.207 bb production, 3.607 bb total supplies, 3.436 bb total use, 171 mb ending stocks, 4.98% S/U, & $11.50 /bu U.S. soybean price.