The latest US revisions to crop forecasts look supportive
for soybean prices as well as to corn and wheat futures - contrary to what the
market appears to believe.
The US Department of Agriculture's latest estimate revisions, in its
monthly Wasde report, handed obvious support to wheat and corn futures.
The USDA, citing strong export prospects, cut forecasts for
domestic inventories of both grains by more than traders had expected. US wheat export commitments so far in 2013-14
are running 27% ahead those a year ago, and corn shipments well over twice last
For soybeans, the report gave hope to bulls too. But it is a bit
harder to find.
In fact, corn futures might have been expected to fare
better from the Wasde, rather than the pretty flat performance they have shown
so far, were it not for worries about unsold supplies.
The bigger-than-expected downgrade to the estimate for US
corn inventories at the close of 2013-14, to 1.48bn bushels (37.6m tonnes),
implies a stocks-to-use ratio of 11.1%.
(The stocks-to-use ratio is an important pricing metric,
indicating the level of competition buyers face for supplies.)
Besides being down a significant 1.3 points on the figure
signalled by last month's estimates, the ratio is also now well below its
10-year average – a remarkable turnaround given the market's hefty stocks
expectations as the US was reaping its record harvest last year.
However, investors are, quite reasonably, concerned that US
farmers, who have substantial amounts of last year's record harvest yet to
sell, may be lured by higher prices to sell.
For soybeans, investors appear to have a less warranted
Sure, the Wasde did not, as traders had expected, cut the
forecast of 150m bushels for US soybean stocks at the close of the season.
But the market was unrealistic in expecting a downgrade to a
figure already at a level below which USDA officials may be uncomfortable to
They have consistently shown they are unwilling to downgrade
stocks estimates below a pipeline minimum – the level below which inventories
will not readily fall, and representing volumes in places such as barges and
rail wagons, besides amounts left hanging around in elevators and buyers'
A soybean stocks figure of 150m bushels look a likely candidate as the
USDA's pipeline supply floor.
Inventories at that level represent 4.5% of demand – a
stocks-to-use ratio which has been equalled, but not undershot, four times
since the 1960s.
The boost to prices on this score is that to secure this level
of supplies means either constrained demand or raised imports – both dynamics
which imply relatively high values compared with the international market.
In fact, there is an interesting echo from last season.
Factor in Monday's US export cargo inspection data, and the
country has some 8m tonnes left to ship over last seven months of 2013-14 to
reach the 41.1m tonnes expected to be shipped over the whole season.
That is in line with the 7.7m tonnes the managed in the last
seven months of 2012-13 – but well below the near-17m tonnes in the
February-to-August period the season before.
That is not to imply that that soybean prices will repeat
last year's summer rally, when they topped $16 a bushel, to constrain demand.
This season, there is far stronger competition this time
from South America, where a record Brazilian harvest is in the works, and the
country's logistical problems seem to be in retreat.
But it does indicate that investors believing soybean prices
are vulnerable may be disappointed.
And given the amount of crop already sold at elevated
prices, farmers look likely to beat the bottom-of-the-range $11.95-a-bushel
the USDA still believes they could receive for their 2013 soybean crop.