The News & What it Means – New-Crop US Soy Ending Stocks Set to Drop but So What?

By John DePutter & Dave Milne – May 16, 2019
The news:

“The USDA forecast new-crop soybean ending stocks at 970 million bu, which would represent a 25-million bu reduction from the revised 2018-19 ending stocks estimate of 995 million.”

– Syngenta website article, May 10, 2019

What it means:

Typically, when ending stocks go down it’s good news for prices. But in this case, there’s nothing good about it.

Yes, new-crop ending stocks may be headed in the right direction (down), the first such year-over-year drop since 2013-14. But the overriding factor here is simply the massive supplies that figure to be on hand at the end of the 2019-20 marketing year regardless. It is absolutely unprecedented and sets up the very real possibility we could go deeper into unchartered territory when the harvest rolls off this fall.

More soy acres a possibility

Let’s just consider the variables. First is the fact spring planting across the American Midwest is lagging behind badly. As of May 12, less than one-third of the American corn crop was in the ground – a time when two-thirds of the acres would normally be seeded. The weather looks better for this week, but it’s safe to assume that farmers will have to burn two or three days of that window of opportunity just waiting for fields to dry. Meanwhile, wetter conditions are forecast to return next week.

With corn planting moving so slowly, it raises the increasing likelihood that at least some intended corn acres will eventually get switched over to soybeans, bumping up the 84.6 million acres the USDA originally said farmers would seed this year to soybeans in its March prospective plantings report. Consider that the largest recent decline in corn acres from March to June was nearly 1 million in 2010, another unusually wet year. In that same year, June soybean acres increased 800,000 compared to March intentions.

Obviously yields have a bigger say in terms of final overall production compared to the number of acres planted, but a larger planted area will no doubt still add more to the soy stockpile.

Trade and ASF complicate export outlook

Further, trade uncertainties abound. In its first supply-demand outlook for 2019-20, the USDA pegged expected exports at 1.95 billion bu, an increase of nearly 10% from a year earlier. However, an argument can now be made that American export prospects are dimmer after the US and Chinese governments exchanged new tit-for-tat tariff increases over the past week or so.

The USDA is optimistically projecting 2019-20 China soybean imports at 87 million tonnes, an increase of 1 million from a year earlier. But if the US and China fail to come to some trade agreement, American farmers may be facing a second consecutive year when their largest traditional customer may be unwilling to buy during the critical October-February period.

At the same time, the 2019-20 soybean demand picture is being clouded by the continued spread of African Swine Fever, particularly in China.

And let’s not forget South America. The USDA is projecting 2019-20 Brazil soybean production at a record 123 million tonnes, up 6 million from a year earlier and more than enough to offset a projected 3-million tonne decline in Argentina output to 53 million. Bigger production in South America means China has more opportunity to replace US soy purchases.

At the end of the day, the projected decline in 2019-20 US soybean ending stocks may not ever come to pass. And if it does, stocks remain so heavy it may not make much difference to prices anyway.

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