- Production seen at all-time high of 3.95 billion bushels
- Inventories still poised to decline for first time in years
U.S. farmers just can’t seem to grow enough soybeans to satisfy China.
For the third year in a row, U.S production is expected to set a record, the best such string since 1979. Yet, with output dropping elsewhere, a flurry of demand from China and other importers is eating away at stockpiles. The result: For the first time in three years, domestic inventories are poised to drop below the previous season, according to analysts surveyed by Bloomberg.
Soybeans are used to make everything from animal feed to cooking oil, soy sauce and tofu. Since 2005, China’s imports of the commodity have more than tripled, and it now buys more than 60 percent of the world’s exports. The demand is primarily driven by its livestock sector as a growing middle class consumes more meat.
As contrary weather hindered crops in Latin America, U.S. soybeans have secured seven weeks of record export sales since May. To maintain “adequate supplies” domestically, U.S. fields need to beat last year’s record yield of 48 bushels per acre, according to Daniel Basse, president of AgResource Co., a Chicago-based industry researcher.
“We can use everything we produce,” Basse said by telephone. “It’s a big crop, but the big demand story is coming on now. The U.S. will be the main source for soybeans from now through Valentine’s Day because of crop problems in Brazil from hot, dry weather and flooding in Argentina.”
Brazil is forecast to be the world’s leading soybean exporter in the current season, shipping 57.2 million metric tons, ahead of the U.S.’s 48.9 million, the USDA said last month. Argentina is the biggest shipper of soybean meal and oil.
Planting progress for the U.S. crop in May was faster than the prior five-year average, allowing the plants to take advantage of June’s sunny weather. Rain in early July then boosted soil moisture, raising crop ratings to the highest since 2004. The forecast for more rain in August is key for the plants to reach full yield potential as plant pods fill up with beans, said Troy Deutmeyer, an agronomist with Dupont Co.’s Pioneer seed unit in Dyersville, Iowa.
In Illinois, the biggest grower after Iowa, the crop is very good, relatively disease-free and “eye-appealing,” according to Matthew Brandt, the regional agronomy lead for St. Louis-based Monsanto Co. Soybean plants are larger than normal, which can limit yield potential because plants used more energy to grow before making pods and filling them with beans, Brandt said in an interview.
On Friday, the USDA will update its monthly crop forecasts in this year’s first corn and soybean estimates, based on farmer surveys and field measurements in 11 states from Arkansas to South Dakota.
Domestic farmers in the U.S. are poised to collect 3.948 billion bushels of the oilseed this season, the most ever and higher than the government’s July forecast, according to a Bloomberg survey of 33 analysts and firms. Inventories next year are seen falling to 321 million bushels from 324 million for the season that ends on Aug. 31, a Bloomberg survey showed.
For 10 consecutive days ending on Aug. 9, U.S. exporters sold a total of 3.17 million tons (116 million bushels) to China and unknown buyers, mostly for delivery after Sept. 1, according to USDA data. Spot shipments have also been strong, with the USDA inspecting 972,001 tons in the week ended Aug. 4, a record for the time of year. In the week ended Aug. 4, sales for delivery after Sept. 1 more than doubled to 2.79 million metric tons from the prior week, the government said Thursday in a report.
With a few more strong weeks, U.S. shipments in the year that ends Aug. 31 may breach the July USDA forecast of 1.795 billion bushels, reaching as high as 1.88 billion bushels, according to AgResources’ Basse. Exporters were bidding $1.02 a bushel above November futures for delivery of supplies in September to terminals near New Orleans on Aug.9, up from 79.5 cents on July 29, USDA data show.
South America Slump
The gains come amid a slump in South American sales.
Brazil’s exports peaked in April, earlier than usual, and dropped to a three-year low in July of 5.8 million tons, according to trade ministry data. The country’s government crop forecasting agency has lowered its production outlook to 95.4 million tons, down 0.8 percent from the prior year. Louis Dreyfus Co. this week said it will halt soybean crushing at two plants in Brazil because of “current supply and demand conditions.”
The fallout from weaker crops in Latin America has been a 16 percent boost in U.S. cash soybean prices this year, while corn and wheat prices have dropped. A Bloomberg index tracking rolling most-active futures has gained 15 percent, heading for the best year since 2012.
Even with burgeoning supply in the U.S., soybean futures may rise to $10.50 a bushel in the first quarter -- 7.4 percent above the March futures prices of $9.78 at 10:13 a.m. in Chicago on Thursday -- as global production is "set to only just cover demand,” Commerzbank AG said in an Aug. 9 report.
A measure of global soybean stockpiles relative to consumption is poised to fall to 20 percent in the 2016-17 season, the lowest in five years and a second straight decline, according to USDA estimates made in July. A boost to U.S. production forecasts in the upcoming USDA report may help to buffer the ratio.
“If I’m reliant on importing soybeans then, while I might be happy or relatively contented with the size of the U.S. crop, my attention rightly switches to what’s going to happen in South America for the next crop,” said Fiona Boal, director of commodity research at Fulcrum Asset Management in London. “There’s just no wiggle room with the global soybean balance sheet.”