KSU Soybean Market Outlook in Mid-September 2017 – Likelihood of Lower Production and Higher Price Outcomes

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/grain-marketing/grain-market-outlook-newsletter

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Summary

Recent Soybean Futures Price Trends

Since the USDA’s September 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, soybean futures have increased.  CME NOV 2017 soybean futures opened at $9.60 ¾ on Tuesday, September 12th – the day of the report – then traded as low as $9.37 ½ that same day before closing $0.09 ½ lower that day at $9.50 ½.  Since then, NOV 2017 soybeans have trended “irregularly” higher to close at $9.70 ¾ on Thursday, September 21st.  

World Soybean Market Perspectives

Since 2014, World soybean market prices have been limited by a developing “large crop – low price” supply-demand regime, caused by consecutive record or near record World soybean production years for 2014 through projections for 2017.

Longer term, from MY 2008/09 to projected “new crop” MY 2017/18, a strong upward trend in World soybean production (up 7.1% annually) has “out-paced” annual increases in World soybean use (up 6.1% per year).  “Old crop” MY 2016/17 World production is estimated to have been a record high of 351.4 mmt, followed by a projection of near record World production of 348.4 mmt in “new crop” MY 2017/18.  In what is exceedingly good news for the World soybean market, total use has also increased along with production, to 329.8 mmt in “old crop” MY 2016/17, and to a projected record high of 344.3 mmt in “new crop” MY 2017/18.

The degree of “abundance” or “large quantities” in World soybean ending stocks have been a key issue leading to current “moderate-to-low” soybean prices in World markets relative to recent years.   Since World soybean ending stocks of 61.5 mmt (22.3% ending stocks-to-use or ‘S/U’) in MY 2013/14, soybean stocks grew sharply to 77.5 mmt (25.6% S/U) in MY 2014/15 and 77.7 mmt (24.7% S/U).  Then in “old crop” MY 2016/17 World ending stocks are estimated to have increased to a record level of 96.0 mmt (29.1% S/U), followed by a further increase to 97.5 mmt (28.3% S/U) in “new crop” MY 2017/18. 

A key World soybean market strategy will be to wait to figure out whether dry conditions or some other crop production malady will occur in late 2017 or early 2018 in South America that could limit 2018 soybean production in the southern hemisphere.  Although World soybean demand growth has been as strong as can be expected, it seems that a “supply shock” or “crop shortfall” in 2018 or following years would be the most likely factor to drive World soybean production and supply-demand balances low enough to alter the existing “large supply – buyer’s market” situation.  With prospects now pointing toward a near record 2017 U.S. soybean crop, World markets will turn their attention toward 2018 South American production prospects as the next major source of soybean market risk – providing the possibility of a change in paradigm and higher soybean prices in the next 12-18 months.

USDA Corn Supply-Demand & Price Forecast for “New Crop” MY 2017/18

The USDA made no adjustments in its projection of 2017 U.S. soybean plantings of a record high 89.513 million acres (ma) – up from 83.433 ma in 2016.  Forecast 2016 harvested acres of a record 88.731 ma is also up from 82.736 ma in 2016.  With near record high projected yields of 49.9 bu/ac (up 0.5 bu from August), 2017 U.S. soybean production is projected to be a record high 4.431 bb – up from 4.307 bb in 2016 (2nd highest) and from 3.926 bb in 2014.   With forecast “new crop” MY 2017/18 domestic crush at a record 1.940 bb and exports forecast to be a record 2.250 bb (up 25 mb), projected U.S. total soybean use is a record 4.326 bb – up from 4.183 bb in “old crop” MY 2016/17 and from 3.944 bb in the previous marketing year. 

Given these results, “new crop” MY 2017/18 U.S. soybean ending stocks are forecast to be an 11 year high of 475 mb (10.98% S/U), while U.S. soybean prices are forecast to be in the range of $8.35-$10.05 (midpoint = $9.20 /bu).  This U.S. soybean price forecast is down from $9.50 in “old crop” MY 2016/17, but up from $8.95 the year before.  This USDA projection scenario is thought to have a 60% probability of occurring in the judgment of Kansas State University Extension.

Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18

Three alternative KSU-Scenarios for U.S. soybean supply-demand and prices to the USDA projection are presented for “new crop” MY 2017/18.  Each forecast scenario presents the likelihood that exists of higher U.S. soybean acreage, lower yields and lower production, and higher prices than projected by the USDA in the September 12, 2017 WASDE report. 

A – KSU “New Crop” MY 2017/18 “Lower Yield” Scenario #1) “48.0 bu/ac – 4.278 bb” Scenario (30% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 4.226 bb total use, 422 mb ending stocks, 9.99% S/U, & $9.70 /bu U.S. average soybean price; 

B – KSU “New Crop” MY 2017/18 “Very Low Yield” Scenario #2) “45.85 bu/ac – 4.085 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 45.85 bu/ac yield, 4.085 bb production, 4.455 bb total supplies, 4.106 bb total use, 349 mb ending stocks, 8.50% S/U, & $10.20 /bu U.S. average soybean price; 

C – KSU “New Crop” MY 2017/18 “Wildcard World Event” Scenario #3) “48.0 bu/ac – 4.278 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 3.861 bb total use, 787 mb ending stocks, 20.38% S/U, & $7.00 /bu U.S. average soybean price; 

Note: The presence of large beginning stocks of 345 mb in “new crop” MY 2017/18 limit the “tightness” of supply-demand balances along with prospects for a record large 2017 U.S. soybean crop of 4.431 bb (USDA). Prospects for such large supplies of soybeans hinders any upward price responses in the KSU Scenarios A, B and C above.

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