Strong Demand for U.S. Soybeans Will Soon
Shift Quickly to Brazil
(February 12, 2014) Based on unprecedentedly high shipments and sales, USDA raised its 2013/14 forecast of U.S. soybean exports this month by 15 million bushels to a record 1.51 billion. U.S. season-ending soybean stocks for 2013/14 were forecast unchanged at 150 million bushels as the increased exports are expected to be offset by larger imports and lower residual use. USDA raised the forecast of its 2013/14 average farm price to $11.95-$13.45 per bushel from last months forecast of $11.75-$13.25.
For Argentina, a slightly lower yield outlook trimmed USDAs 2013/14 soybean production forecast this month by 500,000 metric tons to 54 million. USDA reduced its 2013/14 forecast of Argentine soybean exports by 1.7 million tons to 8 million. Similarly, the countrys soybean crush was forecast 1.7 million tons lower to 36.6 million, prompting lower forecasts of soybean meal and soybean oil exports.
Record High U.S. Soybean Exports Seen With Recovery in Foreign
Competition Still Pending
This month, USDA raised its forecast of U.S. soybean exports for 2013/14 by 15 million bushels to a record 1.51 billion. The signs that a significant seasonal decline in soybean exports has begun are still indiscernible. Shipments were record-high in each of the last 3 months. As of January 30, cumulative soybean export inspections totaled an all-time high 1.16 billion bushels. Despite this, outstanding export sales are also still very large (420 million bushels) with more than half of the marketing season remaining. Another indicator of the export markets continuing strength is an exceptionally large spread between soybean prices at central Illinois and Gulf export elevators, which now exceed $1 per bushel. Once the decline in export shipments does finally occur, it could be sudden and steep. Its timing will be strongly correlated with an acceleration of soybean exports from Brazil. In line with this eventual decline, a sharp break in the Gulf price is also soon anticipated.
U.S. season-ending soybean stocks for 2013/14 were forecast unchanged at 150 million bushels. This months higher export forecast was offset by a 5-million-bushel increase for soybean imports and a 10-million-bushel decline for the estimated residual. The residual is the statistical difference between the total estimated supply and the sum of reported uses and ending stocks. In recent years with comparably tight soybean stocks, the residual has usually been small.
The robust demand for U.S. soybeans--particularly in the export market--has provided solid support for farm prices. In most locations, cash prices are still above $13 per bushel. Prices have stayed high in order to ration U.S. soybean stocks prior to availability of South American new-crop supplies. USDA raised the forecast of its 2013/14 average farm price to $11.95-$13.45 per bushel from last months forecast of $11.75-$13.25.
As with soybeans, U.S. export shipments of soybean meal are still proceeding at a record pace. While the expected seasonal total would still be shy of an all-time high, 2013/14 exports are forecast 200,000 short tons higher this month to 10.9 million. U.S. exporters have benefited the most from a decline in output by Argentine processors. U.S. soybean meal sales to the Philippines and Vietnam are particularly robust. In January, soybean meal prices dipped below $480 per short from the December-average of $498. The year-to-date average price, however, was high enough to lead USDA to raise its 2013/14 forecast to $425-$465 per ton.
In contrast, domestic use of soybean meal may not be as strong as previously anticipated. USDA lowered its forecast of 2013/14 domestic disappearance this month by 200,000 tons to 29.6 million. Feed demand over the past several months has been curbed by Porcine Epidemic Diarrhea Virus, which is often fatal to pigs. Cold weather and lack of an effective vaccine have made the disease difficult to control. This is seen completely offsetting the increase in soybean meal exports, so the forecast of the domestic soybean crush is unchanged at 1.7 billion bushels.
Strong overall demand for soybean meal this year has also helped add to the supply of its joint product--soybean oil. And although first-quarter domestic demand for soybean oil was quite brisk, a sudden slowdown is likely after expiration of the biodiesel blending credit on January 1. Month-ending soybean oil stocks have started to turn back up. In January, the monthly average price for soybean oil in central Illinois fell to 34.95 cents per pound from 37.6 cents in December. USDA was prompted to lower its forecast of the 2013/14 average price to 34.5-37.5 cents per pound from 35.5-39.5 cents last month.
The plunge in domestic soybean oil prices has now made them less expensive than exports from Argentina and Brazil and considerably narrowed soybean oils premium relative to palm oil. As a result, U.S. exports of soybean oil have recently shown considerable strength. However, they still are likely to lag well behind last years trade, when there were uncommonly large shipments to China and India.
Hot and Dry Weather Hurts Argentine Soybean and Sunflower Seed Crops
USDA trimmed its 2013/14 soybean production forecast for Argentina by 500,000 metric tons this month to 54 million. By the beginning of February, virtually all soybean planting in Argentina was complete. A majority of the Argentine crop was sown in November and December and is now well into flowering and pod development. For the earliest sown soybean crops, spells of high temperatures and sporadic rainfall throughout December and January likely curtailed yields. By late January, however, the crop was stabilized by improved rainfall and less extreme heat. The Argentine Ministry of Agriculture reports that 86 percent of soybeans were in good to very good condition.
In contrast, development of the Argentine sunflowerseed crop is more advanced. About 20 percent is already harvested--primarily in northern Argentina. Low yields are reported for this part of the harvest and prospects for later sown fields in southern Buenos Aires and La Pampa may be just as poor. A lower yield forecast for sunflower seed reduced the 2013/14 production estimate by 400,000 tons this month to 2.3 million. The smaller crop forecast is expected to reduce the Argentine sunflower seed crush in 2013/14 to 2.55 million tons, thereby reducing the export forecasts for sunflowerseed oil and meal.
Argentine Financial Turmoil May Signal Fundamental Changes For
The economic situation in Argentina deteriorated sharply in January. Despite previous interventions by the Argentine Central Bank to sell dollars, it has been unable to sustain its support of the peso. Argentinas reserves of foreign currency have now declined to $28 billion, compared to more than $50 billion in 2011. Current dollar reserves can now cover only 4 months of the countrys everyday import needs. The tenuous balance-of-payments outlook also complicates servicing the debt held by foreigners. Consequently, the official exchange rate tumbled by about one-third since early December to around 8 pesos per dollar. The Government
has responded by loosening some restrictions on purchasing dollars in the country, although access to them by farmers and other businesses is still formidable.
The Argentine soybean complex is highly dependent on exports. So the pesos rate of exchange is critical as it affects the value that can be earned from foreign sales of soybeans and soybean products. Past interventions with the peso have sharply discounted the true worth of soybeans in Argentina. Unable to convert soybean sales into their true dollar value, Argentine farmers have sold crops only when necessary to pay outstanding expenses and stored the remainder. Their unsold soybean stocks serve as a critical hedge against inflation, as they hold their value in dollar terms far better than pesos in any bank account. Thus, massive stocks of soybeans have accumulated over time in tandem with Argentinas rising sown area and production.
In contrast, Argentine exports and crushing of soybeans were sluggish in recent months as buyers were unable to attract sellers. A few more old-crop sales could be encouraged by the slightly more favorable official peso rate and--with large new-crop harvests close at hand--an impending decline in prices. Even so, the official rate is still overvalued by as much as 50 percent. Farmers still might wait a few weeks longer to see if the economic situation stabilizes or whether continued depreciation lies ahead.
This month, USDA reduced its 2013/14 forecast of Argentine soybean exports by 1.7 million tons to 8 million. Shipments for October-December 2013 are only marginally ahead of the 2012/13 pace, which finished at 7.7 million tons. Similarly, the countrys soybean crush was forecast 1.7 million tons lower to 36.6 million. The October-December 2013 soybean crush was a modest 6 percent higher than a year earlier. With a forecast 9-percent increase for the year, some acceleration is anticipated once the harvest starts. Even with a lower forecast of soybean production, Argentine stocks may swell by October to 29.8 million tons, versus 22.4 million a year earlier. For perspective on the magnitude of these unsold stocks, they would be nearly equivalent to one-third of the entire U.S. soybean crop.
A lower crush in Argentina is seen curtailing the forecast of 2013/14 soybean meal exports by 1.6 million tons to 27.3 million. Likewise, lower supplies are expected to trim Argentine exports of soybean oil to 4.5 million tons.
Brazil Soybean Yields Are Extraordinarily Good
Despite this months reduction for Argentina, global soybean production for 2013/14 is expected 865,000 tons higher (to 287.7 million) based on better yield prospects for Brazil and Paraguay. The 2013/14 production estimate for Brazil increased 1 million tons to 90 million, led by excellent yields in Mato Grosso. As of early February, soybean harvesting was approximately 12 percent complete and on par with last year. Although soil moisture has declined recently for parts of southern Brazil, the yield gains of the Center-West are unlikely to be completely offset by any lost potential in the South.
While the economic situation in Brazil is not as dire as in Argentina, it has not been untouched by its neighbors crisis, either, due to its status as a major trading partner. Brazils exchange rate has depreciated 2.5 percent against the U.S. dollar since December and 8 percent since November. So, even with the pressure of an advancing harvest, soybean prices in Brazil have been supported by the weaker exchange rate.
Starting this month, an imminent decline in U.S. soybean exports and a sluggish pickup in Argentine shipments will likely accelerate the shipments from Brazil. A growing number of vessels are lining up at Brazilian ports, ready to transport new-crop supplies. Given the difficulty of acquiring more soybeans out of Argentina, Brazils soybean exports in 2013/14 are seen ramping up quickly to a record 45 million tons. This would be 1 million tons higher than last months forecast.
Under similarly favorable growing conditions, the soybean crop in Paraguay is also seen higher this month. Higher expected yields boosted USDAs production forecast for Paraguay by 300,000 tons to 9.3 million. All of the additional output is expected to be exported from Paraguay, which would push its soybean exports in 2013/14 to 5.8 million tons.
February 12, 2014
Economic Research Service
USDA, Washington, D.C.