KSU Soybean Market Outlook in September 2016 – Positive U.S. Crush and Exports Offer Hope to Soybean Market

An analysis of U.S. and World soybean supply-demand factors and 2016-2017 price prospects following the USDA’s September 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports either is available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary of the article on Soybean Market Outlook – with the full article and accompanying analysis available on the KSU AgManager website at the following web address;

http://www.agmanager.info/soybean-market-outlook-september-2016

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Summary

Market Overview

Since the USDA released its World Agricultural Supply and Demand Estimates (WASDE) report on September 12th, soybean futures prices have moved both higher and lower within approximately a $0.50 range.  From the September 12th close of $9.64 ¼, 2016 when CME NOV 2016 soybean futures prices have traded from a low of $9.40 ½ on 9/14 to a high of $9.94 on 9/20, before closing at $9.49 ¼ on 9/27/2016.

Since 2014, World soybean market prices have been limited by a developing “large crop – low price” supply-demand regime, caused by consecutive record World soybean production years for 2014 and 2015, with large but not record crop in South America and a record high in the United States.  Lower than expected 2016 production in Brazil has led to record high U.S. soybean export trade prospects in “new crop” MY 2016 (starting 9/1/2016).

World Production, Ending Stocks & % Stocks-to-Use

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 7.0% annually) which will have “out-paced” the increase in World soybean use (up 6.0% per year) if it holds true.  However, the shortfall in South American’s soybean production in “old crop” 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 “old crop” MY 2015/16 and for projected “new crop” MY 2016/17, U.S. and World soybean prices have received at least moderate support.  Since World soybean ending stocks of 62.0 mmt (22.4% S/U) in MY 2013/14, stocks grew sharply in MY 2014/15 to 78.5 mmt (26.1% S/U), but have since declined to an estimate of 72.9 mmt (23.0% S/U) in “old crop” MY 2015/16, and are forecast to decline further marginally to 72.2 mmt (22.0% S/U) in “new crop” MY 2016/17.

Key Focus in 2017 on Weather in South America and the U.S.

A key World soybean market issue will be to find out if 2017 weather or disease problems in South America end up driving southern hemisphere 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.

Markets will also be focusing on the degree to which the record 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 Supply-Demand Forecast of “Old Crop” MY 2015/16

The USDA raised its forecast of U.S. soybean exports and sharply tightened ending stocks to use in “old crop” MY 2015/16.  With a projection of U.S. total supplies at 4.145 bb and domestic crush at 1.900 bb, the USDA forecast U.S. exports to be 1.940 bb – up 60 mb from August. With this change, total use increased 60 mb to 3.949 bb, with ending stocks declining to 195 mb (down 60 mb.

Ending stocks-to-use are projected at 4.94% – down from 6.56% in August, and 9.225% in July, and essentially equal to 4.95% in MY 2014/15, but still above the record low of 2.65% in MY 2013/14.  The USDA forecast “old crop” MY 2015/16 U.S. soybean average prices to be $8.95 /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 (65% LikelihoodKSU)

The USDA left unchanged its projection of 2016 U.S. soybean plantings of a record high 83.688 million acres (ma) – up from 82.650 ma in 2015.  Forecast 2016 harvested acres of a record 83.037 ma is also up from 81.814 ma in 2015.  With record high projected yields of 50.6 bu/ac (up 1.7 bu from August), 2016 U.S. soybean production is projected to be a record high 4.201 bb – up from 3.929 bb in 2015 and 3.927 bb in 2014.   With forecast “new crop” MY 2016/17 domestic crush at a record 1.950 bb (up 10 mb) and exports at a record 1.985 bb (up 35 mb), projected total use equals 4.061 bb (a new record high ahead of 3.949 bb in “old crop” MY 2015/16 and 3.862 bb in MY 2014/15).

Given these results,  ending stocks are forecast to be 365 mb (8.99% S/U), while U.S. soybean prices are estimated by the USDA to be in the range of $8.30-$9.80 (midpoint = $9.05 /bu) – up from the $8.95 /bu in “old” MY 2015/16.  This USDA projection is thought to have a 65% probability of occurring according to Kansas State University Extension.

Alternative KSU Forecast for “New Crop” MY 2016/17 (35% LikelihoodKSU)

An alternative KSU-Scenario for U.S. soybean supply-demand and prices is presented for “new crop” MY 2016/17.  In this market perspective U.S. soybean domestic crush is projected to be 2.000 bb – up 50 mb from the USDA’s projection.  Also, U.S. soybean exports are forecast to be 2.035 bb – also up 50 mb from USDA estimates.  Taken together, U.S. soybean total use is forecast to be 4.161 bb – up 100 mb from USDA.

Ending stocks are forecast to be 265 mb – down 100 mb vs USDA #s, with % ending stocks-to-use estimated to be 6.37% – down from 8.99% S/U according to USDA projections.  Under this scenario, “new crop” MY 2016/17 U.S. soybean average prices would likely average $9.70 /bu – compared to the USDA’s midpoint projection of $9.05 per bushel.  This scenario is thought to have a 35% likelihood of occurring – compared to a 65% probability of occurrence for the USDA supply-demand and price projection for U.S. soybeans in “new crop” MY 2016/17.

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