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Soybean markets continue to chew on large production numbers and building stocks

<p><em>GETTY IMAGES, Scott Olson</em></p>
Input prices will play a key role in U.S. soybean acreage in 2015. Some growers in the Corn Belt will look at soybeans as a lower input crop. Other commodity prices also will have an impact.

An anticipated record U.S. soybean crop has triggered a steady decline in prices, but use has continued to expand, offering a ray of hope to the market.

“For the 2014-15 marketing year, the stocks-to-use ratio is headed to 13.26 percent, compared to the last three years of 3.85, 4.54 and 5.36 percent, so we’re building substantial stocks,” says Aaron Smith, University of Tennessee Extension economist.

“One ray of sunshine is that use has continued to expand, especially with export markets. That is helping us to chew through some of these production numbers.”

Looking at U.S. soybean supply and demand numbers from the September WASDE (World Agricultural Supply and Demand Estimate) report, beginning stocks dropped back to 130 million bushels, which was a 7.1 percent decrease from August and a 7.3 percent decrease from the previous year.

“They estimated an average 46.6 bushels-per-acre average yield,” Smith says. “Prior to July, there was a lot of talk about how tight ending stocks were, and how they might end up balancing it. They’ve done it through adjusting imports over time.”

Acres planted in the South total more than 14 million, compared to the entire U.S. where growers planted 85 million acres this past year.

“That’s a substantial increase, considering where we were in the early 2000s,” says Smith. “Arkansas is leading the way at just under 3.5 million acres, followed by Mississippi, with Kentucky, North Carolina and Tennessee rounding out the top five.

“Georgia, Texas and Florida — the three largest states — are at the bottom of the barrel. In 2014, compared to 2013, all but one state, except Virginia, had soybean acreage increases over the previous year.”

More beans in Corn Belt

Soybean production also continues to increase in areas of the Corn Belt, Smith says. “If you look at where the vast majority of soybeans are produced, there’s very little to no drought, so we’re expecting some record-high yields. Most areas with a substantial amount of soybeans planted will end up having reasonably good conditions.”

Looking at crop progress this year, U.S. producers are mostly in the good-to-excellent range, so overall the crop condition is in very good shape.

“We are a little bit behind the five-year average on maturity,” he says. “That is of some concern as we move into the more northern states. But with each passing week, those concerns are being eliminated as far as a potential freeze. Overall, the soybean crop this year is in very good condition.”

Historically, from 1924 to 2014, U.S. soybean yield has increased by an average of about .35 bushel per year, says Smith. 2012 was the only year out of the last six when we actually dropped below the yield trend line.

Regionally, Arkansas is eyeing good yields at 46 bushels, Tennessee at 47, and Mississippi at 49, with Kentucky showing a slight decrease in yield from 2013.

Looking at the Corn Belt, Nebraska is estimating 53 bushels per acre and Illinois is at about 56 bushels per acre. The record crop in 2013 is looking smaller and smaller compared to this year’s crop, says Smith.

Soybean production is showing just below 4 billion bushels in domestic production, he says.

Decline in production dollars

“In 2012, we actually had higher dollar production due to high prices from the drought. In 2014, even with the record crop, we’ll probably see that come down some more, depending on where the marketing year average price settles.”

Stocks-to-use shows domestic crush continues to increase at almost 1.8 billion bushels, says Smith.

“Last year, we ended up having very tight ending stocks, at 130 million bushels. We’re looking at just over tripling that this year. Stocks-to-use goes from 3.5 percent up to 13.5 percent — and that won’t bode well for prices.

“We do have strong domestic use, and exports have been very good. But with such a high ending stocks number, it’ll take something significant to whittle that down in a substantial way.”

Soybean meal and oil exports have continued to increase since 2010-11.

China is largest soybean importer

China is pretty much the only major producer of soybeans that is decreasing production this year, says Smith.

“We’re seeing some substantial increases in production coming from some of the key production areas, including the U.S., Argentina and Brazil, not only for 2013-14, but WASDE’s September numbers were quite substantial as well.”

These three countries, he says, continue to be the big players in world soybean production.

“The U.S. has 34 percent of global production, Argentina 17.7 percent, and Brazil 30.2 percent. About 80 percent of global exports are coming from the U.S. and Brazil, and a substantial amount of world stocks are in the U.S.”

There is instability in Argentina with a high rate of inflation and some infrastructure issues, says Smith. Growers there also are hoarding soybeans because they hold value better than the country’s currency.

China is the largest importer of soybeans, with 30 percent of global use and about 15.5 percent of global stocks. “Brazil had been creeping closer to the U.S. in production, but the U.S. distanced itself this year.,” he says. “The trend of production increasing in Brazil has been rather remarkable. Downsides to that are infrastructure challenges and shipping concerns in Brazil, bringing in soybeans from the interior production regions and getting them loaded on a timely basis.

Continued increases in Brazil

There are some logistical issues that need to be ironed out. But Brazil has continually increased its soybean acreage, and it’s expected acres there will increase by 4.7 percent this year, which doesn’t bode well for the U.S. in world production.”

Global ending stocks are expected to be up 7 percent from 2013, says Smith. “Some of that is in the U.S., and the total amount of soybean stocks is estimated at 2.2 billion bushels. Stocks-to-use is projected at over 30 percent for the upcoming marketing year with record production of almost 12 billion bushels.”

Global soybean production and use have been bouncing up and down, he says. “For the 2014-15 marketing year, we’re looking at production and seed use of about 960 million bushels.

China is such a major player that you have to have a substantial amount of production heading their way.”

Soybean futures prices have decreased substantially, says Smith. “Back in the spring, when we were up to $11 per bushel, people started talking about the soybean reference price being at $8.40, and how we’d never end up getting there.

Major price concerns

It looks like we’re heading close to that range. I doubt we’ll get there this year, but there are some major concerns heading into 2015 about where soybean prices may end up.”

The primary trigger to this continual price slide was the record acreage announced in the June 30 quarterly stocks and acreage report, says Smith.

“We came down from $12 to $9.51. I don’t know where the bottom will end up being. We typically hit a bottom in the soybean market around October.”

For 2015, USDA’s price projection is at $8.66, he says. “The reference price of $8.40 is still not triggering a PLC payment, but I think these numbers are going to be revised downward substantially.”

Exchange rates will play a key role in how many soybeans the U.S. will export, says Smith.

“The middle class in China is expected to be just over 300 million people by 2018, which is roughly the size of the entire U.S. population.

“They will switch more to protein-based diets, and that bodes well for imports. China is obviously the big kid on the block as far expanding diets, but there are plenty of other countries in Southeast Asia where we might see a rapid expansion of imports.”

Input prices will play a key role in U.S. soybean acreage in 2015, he says.
“Some growers in the Corn Belt will look at soybeans as a lower input crop. Other commodity prices also will have an impact.

“Depending on how long the farm bill signup period goes, producers could change their decisions as they receive more price information.”

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