Two market analysts convened to provide an overview of USDA’s World Agricultural Supply and Demand Estimates and share their perspective as part of a USSEC briefing.
This morning (Nov. 11), economists Mac Marshall and Randy Mittelstaedt highlighted what the U.S. Department of Agriculture’s November World Agricultural Supply and Demand Estimates (WASDE) mean to the global soy complex. Of significance was USDA’s downward revision of the U.S. soybean crop yield, bringing speculators’ concerns of tight global supplies into focus for global buyers.
In its report, USDA analysts revised the projected U.S. soybean crop yield down 1.2 bushels per acre for an average of 50.7 bushels per acre.
This change of 1.2 bushels per acre has a net impact of 98 million bushels, or 2.7 million metric tons, shared Marshall, who serves as vice president of Market Intelligence for the U.S. Soybean Export Council and the United Soybean Board. Based on this revision, he said the total U.S. soy crop is estimated to be 4.17 billion bushels, or 113.5 million metric tons.
This downward revision also impacts projected ending stocks. Marshall reported USDA forecast ending stocks for U.S. soy down by 100 million bushels for a total of 190 million bushels. That’s roughly 15 day’s use — the lowest since marketing year 2013-14.
“This dramatically alters the structure of the U.S. balance sheet,” says Mittelstaedt, pointing to export demand that’s already on the books and the expectation of continued Chinese demand for U.S. soybeans at least for the next several months. Mittelstaedt heads up RJO Market Insights, a division of R.J. O’Brien.
“We are all coming off the knowledge of 2018-19 where we saw soybean ending stocks in excess of 900 million bushels,” Mittelstaedt said. “We’ve essentially come full circle on that in really just a matter of months from a big picture perspective.”
Mittelstaedt added that there’s potential for another downward revision by USDA.
“When we look at the final crop size, we do see there’s a risk for U.S. soybean crop to creep a little bit below what USDA estimated yesterday,” he said. “When we look at that relationship between crop conditions and final yields, we think that there’s another .5 bushel per acre downward revision in USDA’s number.
“If that ends up being the case, where we are trimming another 30-40 million bushels off the U.S. soybean crop.”
However, USDA does not typically update the U.S. crop size in the December WASDE release, so the final U.S. yield and production numbers won't be published until January.
Marshall and Mittelstaedt agree that with the tighter U.S. Soy crop, any further downward revision, will put more onus on the South American crop, an increasing focus of global soy markets moving forward.
Mittelstaedt says buyers have reason for concern.
“It really changes the dynamics of what we may be dealing with [regarding what’s available] until we get a better handle on the South American crop,” he said.
China also play a pivotal role, as Mittelstaedt reminded they don’t follow the normal buying patterns as it relates to price elasticity of demand.
Given China’s desire to rebuild reserve soybean stocks moving forward, Mittelstaedt said this is more a matter of what China wants to buy versus what they need to buy. Even with the price rally, it’s still cheap for them to buy U.S. soybeans.
“Right now, we have 27 million tons of U.S. soybeans on the books, according to export sales data,” he explained. “Taking into account unknown sales to China, that number is probably closer to 31 million tons.
“Widespread expectations under the Phase 1 agreement is that China will import close to record amounts of U.S. soybeans this year at 36.1 million tons. We feel China will buy another 5-6 million tons of U.S. soybeans prior to the ramp up of South America’s supply becoming available.”
Couple this with USDA’s total global export projection of 2.2 billion bushels, and we already have roughly 80% of the sales on the books needed to reach that number, said Mittelstaedt, adding that we are only a couple of months into the marketing year.
This means the U.S. only needs to sell somewhere between 400-500 million additional bushels to hit USDA’s export projections for the total marketing year. To put that in perspective, Mittelstaedt said sales from the November through August period during the past four to five years have run anywhere from 800 million bushels to 1 billion bushels. “Ending stocks are forecast to be 190 million bushels,” he said. “Obviously we are in a situation where the focus is heavily on the demand side of the balance sheet.”