Smaller soybean crop estimate boosts market

MINNEAPOLIS – A smaller-than-expected soybean crop forecast in the U.S. Department of Agriculture’s Nov. 9 crop production report has breathed some fresh air into commodity markets.

Brian Basting, Advance Trading Research Analyst, commented on this finding and others in the USDA’s Agricultural Production and Supply and Demand Estimate Reports during a teleconference hosted by the Minneapolis Grain Exchange.

What were the main takeaways from the soybean reports?

The USDA has reduced the size of the soybean crop in the United States. It was a surprise and there was no one in the trade, based on the trade estimates we looked at, who expected a smaller soybean crop.

The soybean crop reached 4.425 billion bushels from 4.448 billion last month. We saw a reduction in yield in the eastern Corn Belt compared to last month and also in the southwest where we saw a reduction in soybean yield compared to October. These are surprises from what the trade expected.

The USDA has cut the soybean export forecast by 40 million bushels. What impact has this had on the balance sheet when combined with production?

These 40 million bushels are linked to a lower import forecast for China. Chinese imports have been reduced from 101 million tonnes in 2021-2022 to 100 million tonnes. That would be slightly higher than last year’s 99.8 million tonnes and still be a record, but China is a big wildcard moving forward. Will they even import that many bushels of soybeans?

The USDA has taken a conservative stance on soybean exports from the United States, reducing this forecast by 40 million bushels. Net with the smaller crop and reduced export forecast, we saw a modest increase in deliveries from 320 million bushels in October to 340 million bushels in November. However, the average trade estimate was 362 million bushels to go. There was initially a significantly higher movement in the market when the report came out with a weaker than expected harvest compared to October.

Why did the USDA forecast Brazilian soybean production at a record 144 million tonnes?

To some perspective, the United States in the 2021 soybean crop produced about 120 million tonnes. Thus, by far, if this harvest is achieved, Brazil would be the largest soybean producer in the world with 144 million tonnes. This harvest is off to a good start compared to last year when it was quite dry. This year they had more moisture and the crop was sown earlier, which means the crop could be harvested earlier in 2022 and could narrow the U.S. export window in early 2022.

The United States aggressively ships soybean exports today, nearly 100 million bushels last week. However, that window could close earlier than usual if Brazil harvests a record harvest and because it was also sown earlier, it could reach the global pipeline sooner.

The market viewed the corn production and supply and demand estimate ratios as lean neutral, but were there any adjustments from the USDA?

The corn crop increased from last month, from 15.019 billion bushels last month to 15.062 billion this month – 43 million bushels more – due to an increase of half a bushel per acre average yield in the United States. There was no change in the harvested area. Any change in area will be made in January.

The only change to note on the corn use side was an increase in ethanol. We are currently seeing exceptional margins on ethanol and the USDA has changed its forecast of corn used to produce ethanol from 50 million bushels this month to 5.25 billion bushels. Looking ahead, last year we were only 5.028 billion bushels. For example, the USDA is currently forecasting 225 million more bushels for ethanol for 2021-2022.

As a result, the take-out corn for 2021-2022 is 1.493 billion bushels. The average trade estimate was 1.48 billion bushels to go, so it was slightly higher than the average estimate, but slightly lower than October’s 1.5 billion.

We will now be focusing intensely on the pace of exports from the United States, including China, as well as crop development in Argentina, and as we move into 2022, how does the double crop safrinha corn from Brazil begin.

You noted the surprise on the soybean production side with a drop in production, but they haven’t really changed demand. So what triggered the market?

I think the market was really focused on this bigger harvest and this bigger delivery. Some carryover estimates have surfaced for US soybeans of over 400 million bushels. Today, 340 million is still a good sum. They lowered the export forecast of 40 million bushels last month to 2.05 billion bushels. That’s a decrease of 215 million bushels from last year.

The message I would share with soybean growers is that the number of deliveries is higher than last year. At one point in 2020-2021, there were carryover estimates of 100 million bushels. That number was well above expectations in September of 256 million bushels and now we are forecasting 340 million bushels.

The soybean market is really going to be intensely focused now on South America and with the good start in Brazil, I think the big picture now on soybeans is that grinding is slowing down in China. China still imports soybeans, but there are indications that demand may not be as strong as people predicted earlier in China.

These elements make up for this smaller than expected soybean crop. So I’m just reminding people, soybean producers in particular, that this deferral is expected to increase.

Right now, we’re still looking at an increase in soybean acreage planned for 2022. I know a lot can change in the next six months from when growers come into the field, but I think the soybean market appears to be the heaviest of the three major crops. soy, corn and wheat right now.

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