Could Soybeans Best Old Record of $16.63?

May 11, 2012

By: Fran Howard

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Soybean producers should be smiling as they wrap up the 2012-13 planting season.

USDA’s World Agricultural Supply and Demand Estimates, released May 10, showed that both U.S. and world ending stocks of soybeans are nearing record lows and analysts are not ruling out a spike in prices that bests the 2008 all-time high of $16.63 for the nearby futures contract.

First the numbers:

Ending stocks of soybeans were substantially lower than the trade anticipated, with old-crop ending stocks at 210 million bushels, compared with an average estimate of 221 million bushels. New-crop bean stocks were even lower at 145 million bushels, compared with an average trade estimate of 170 million bushels.

For the 2008-09 crop year, ending stocks fell to 138 million bushels. "This report puts soybean ending stocks right down there with 2008’s. The stocks-to-use ratio is well below 5%. This is very reminiscent of 2008," says Chad Hart, agricultural economist at Iowa State University. USDA left the 2012-13 soybean yield at 43.9, which could prove low if planting progress continues at its current pace and the growing season remains favorable.

"The soybean market is diverging quite a bit from the corn market," says Brian Basting, analyst with Advance Trading, Bloomington, Illinois. Basting was the commentator on an MGEX press conference call following the report. "We are looking at the impact of a much smaller crop in South America," Basting says.

World Supply and Demand

USDA now estimates the Argentine soybean crop at 42.5 million metric tons, but Basting says some analysts anticipate that production there will drop below 40 million tons by the time the final numbers are tallied. Brazil’s 65-million-metric-ton crop could also decline, he says.

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As China and other buyers turn to U.S. suppliers for soybeans in 2012-13, U.S. soybean exports could reach record-large levels. "USDA is implying a fundamentally bullish season through new harvest in South America," says Jack Scoville, market analyst with Price Futures Group, Chicago. The 2013 South American harvest will be the first real opportunity for U.S. soybean prices to back off, he adds.

"With stocks projections as tight as they are on both old and new crop, the market will be very sensitive to weather," Scoville states. "With any type of a hiccup, prices could be sharply higher. New records could be set—easily—but it will take weather to do that." He notes that the previous record-high soybean price was $16.63. "Can we do that again? Absolutely," he says.

After that, though, USDA is projecting a large rebound in world soybean production, with 2012-13 world production up 15 percent, compared to the current marketing year. "We are seeing a worldwide response to fill the soybean need," says Hart.

The Wildcards

As for exports, USDA has exports, primarily to China, rising over the next 18 months. "China has booked this year’s soybeans out of South America and those contracts are expected to be honored," Scoville notes. "Now China is buying new-crop out of the United States."

China shifted some soybean acreage into other crops, primarily corn and wheat, this year increasing its need to import soybeans, both for oil and animal feed. "We need to continue to watch China," says Hart. "Will U.S. exports to China hold up? Prices are getting close to the level that, if China is going to pull back, it will start to do that."

With animal numbers climbing globally, feeding should remain strong into the new marketing year, and analysts doubt that a minor slowdown in the global economy will do much to derail demand for animal products. "Maybe a few less T-bones will be served," says Scoville. "But USDA is implying good feed demand."

Perhaps, just like in 2008, the biggest wildcard today is Europe. "If Europe’s problems continue to spread, there is the possibility of slower economic growth globally and possibly even another global recession," Hart says. "But for now, global demand is climbing."