Farm Progress

Reality hits the soybean market

Soybean numbers are bearish following March 9 crop report.

Bob Burgdorfer, Senior Editor

March 17, 2017

5 Min Read
FORECAST: “The [soybean] numbers are even more bearish than they look on the U.S. tables, because the government’s big forecasts for Brazilian production of corn and soybeans could linger into the start of the 2017 crop marketing year,” says Bryce Knorr, Farm Futures senior grain market analyst.

Soybean prices went through January and February in pretty good shape, with Chicago futures trading well above $10 a bushel despite ominous forecasts for a much bigger crop in Brazil.

U.S. soybean exports remained robust deep into the winter to keep traders bullish on the market and prices high. Even new-crop November soybeans, which will be harvested next fall, traded above $10 a bushel, which had farmers locking in sale prices well before planters rolled this spring.

But all good things tend to end. For soybeans, the end to $10 came March 9. That is when USDA lowered exports, increased ending stocks for the 2016 crop and boosted Brazil’s crop by 147 million bushels to a record of nearly 4 billion.

After that, the soybean market went on a bearish binge that took it under $10 a bushel in about two weeks, and to a two-month low.

“The numbers are even more bearish than they look on the U.S. tables, because the government’s big forecasts for Brazilian production of corn and soybeans could linger into the start of the 2017 crop marketing year,” said Bryce Knorr, Farm Futures senior grain market analyst, shortly after the March 9 report.

Corn prices also have come down because of the big numbers USDA sees in South America, losing about 10 cents a bushel in two weeks. But soybean prices have been the most depressing if you have old-crop supplies to sell or more new-crop to hedge.

For market optimists, there still could be problems for soybean crops in Argentina and Brazil. Rail issues and localized flooding in early March disrupted soybean shipments along a key Brazilian highway and raised talk that some export business could be switched to other supplies. Argentina’s soybean harvest does not hit full throttle until April. Time will tell what happens there with yields and farmer selling.

It should be noted Argentina has fewer soybeans this year, 2.04 billion bushels versus 2.09 billion a year ago, as new government policies favored more corn and wheat. But the bushels could still add to the big global soybean supply.

Before U.S. farmers give up hope on soybean prices, they should know there always seems to be a weather or production scare that produces brief price increases in the spring or summer.

At its annual outlook forum in late February, USDA predicted 88 million acres of U.S. soybeans will be planted this spring, up 5.5% from 2016, while corn acreage will drop to 90 million, down 4.2%. However, despite those additional acres, USDA predicts a 3% smaller soybean harvest of 4.18 billion bushels, as the average yield should decrease from 2016’s record 52.1 bushels per acre. USDA also puts the average price at $9.60 a bushel, up 10 cents from 2016.

Those estimated acreage numbers precede USDA’s March 31 report on planted acreage, which is compiled from producer surveys.

El Niño is in, La Niña is out
An El Niño event could develop this summer and fall after the sea surface of the Pacific Ocean warmed in February, U.S. weather forecasters said in their March outlook.

While current conditions remain neutral for an El Niño event and will likely remain neutral through May, the National Weather Service’s Climate Prediction Center said some forecasts now indicate a 50% to 55% chance an El Niño will develop from July to December.

The neutral conditions this spring may have little or no impact on U.S. corn and soybean prices, but could negatively affect yields for Argentina’s coarse grains, wheat and soybeans, and for Brazil's soybeans, and could give a light boost to Black Sea region coarse grain yields, says Knorr.

“Yields in the past were sometimes very bad, sometimes very good, and everywhere in between. In the 35 summers with neutral readings since 1955, corn yields averaged 2% better than normal, with soybeans coming in 1% better,” Knorr says of U.S. crops.

An El Niño event late this summer and fall could mean an increase in this year’s corn and soybean crops, plus bigger coarse grain and soybean yields in Argentina, and lower wheat and coarse grain yields in Australia, he says.

However, Knorr concludes that it is not possible to accurately predict what will happen during an El Niño or La Niña event.

Wheat: Less here, more elsewhere
USDA forecasts the world will have more wheat in 2017, but the U.S. will have less. In March, the agency hiked its global production estimate about 0.5% from its February estimate to 27.6 billion bushels. For comparison, world production last year was 27 billion bushels.

Disappointing returns had U.S. farmers planting fewer acres of winter wheat last fall, and they are expected to plant 3% fewer spring wheat acres this spring. As a result, USDA estimates overall U.S. wheat production in 2017 at nearly 1.84 billion bushels vs. 2016’s 2.3 billion bushels.

However, Argentina and Australia should produce more wheat, and that is expected to push up global production, according to USDA.

“Australia’s 2016-17 wheat production is raised 2 million tons to a record-large 35 million. Projected exports are increased for both Australia and Argentina on their larger supplies, while Canada’s exports are reduced on a sluggish export pace,” USDA said in its March report.

2016 could have been worse
The 2016 farm economy performed better than expected because of great crops here and not great ones in South America, but 2017 has the potential to be worse than forecast, reports USDA Chief Economist Robert Johansson.

“I think 2016 was much better than we thought it would be. When we were looking at the farm income numbers last year at this time, we projected a lower farm income than what we actually ended up with. Farmers were able to cut their costs more than we thought,” Johansson said on the sidelines of this year’s USDA Outlook Forum in Arlington, Va.

Looking to 2017, Johansson told the forum audience that USDA expects the average wheat price to be up nearly 12% at $4.30 a bushel, corn up 3% at $3.50 and soybeans up about 1.1% at $9.60.

“Going into 2017, I think the concern is that even with crop prices going up a little this year, if South America has a good crop and we have another good crop, then prices will be a little lower than what we projected,” he said.

Brazil, of course, is on track to harvest a record soybean crop of about 108 million metric tons and 29% more corn at 86.5 million metric tons. Argentina will be producing more corn and wheat, but fewer soybeans.

Burgdorfer is senior editor for Farm Futures, a sister publication.

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