How is the US going to manage its tight soybean supplies?
Already, the country is, at 135m bushels, on course for the
thinnest end-season stocks, as a proportion of consumption, on records going
back 50 years.
The stocks-to-use ratio is on course to end 2013-14 at 4.0%,
according to US Department of Agriculture data.
And that assumes some cancellations of export orders - with
the country having 44.6m tonnes in full-season commitments, compared with a USDA
estimate of 43.0m tonnes (1.58bn bushels) actually being fulfilled – besides record
US imports of 65m bushels.
The maths were hardly helped on Tuesday by data showing that
domestic use far exceeded expectations, and the year ago, pace in March,
hitting 153.8m bushels, according to the NOPA industry group.
And that number itself it an underestimate, with the US official
data typically some 6m-7m bushels above the NOPA number, implying actual use of
The USDA faces strong demand on the home front too.
Indeed, the figure raised questions of a downgrade, albeit by
just 5m bushels, to 1.685bn bushels, last week in the USDA's estimate for the
domestic crush in 2013-14.
One broker said: "Based on last year's demand we are on
track to crush about 1.720bn bushels which is 35m bushels more than the current
"This would suggest a carryout of 100m bushels, as opposed
to the 135m bushels which is currently projected - unless we see more rationing
in some way or potentially more imports from Brazil."
At Benson Quinn Commodities, Kim Rugel said that "to reach the
USDA forecast crush, we need to average less than 118m bushels for the next five
"Last year, the final five months of the marketing year
averaged 123.6m bushels."
CHS Hedging, putting it another way, said that the US needed,
cumulatively, to cut domestic consumption by 5% from year ago results in the
last five months of 2013-14.
Nor can Chinese cancellations of import orders, of which
there are still concerns, do much to help.
The country, having received 27.4m tonnes of US soybeans this
season, has outstanding orders of only 262,800 tonnes to ditch.
"This leave market forces to encourage and price in more
imports from South America of both soybeans and soymeal," Ms Rugel said.
But there are doubts over this too.
At Chicago broker RJ O'Brien, Richard Feltes said: "The trade
remains sceptical about feasibility of near doubling of 2013-14 US soybean
imports versus last year even with stepped up flow of soybeans arriving into US
$16 a bushel soybeans?
Mr Feltes added: "Meanwhile, US livestock producers still
operating largely hand to mouth on soymeal coverage amid record feeding margins,
which suggests ongoing brisk domestic soymeal demand."
The conclusion is that Chicago futures and inverse spreads "will
be forced higher in coming weeks to ration demand, ramp up imports and draw as
many soybeans as possible into pipeline from the reseller or farmer".
"I cannot rule out" a move by the May contract "to the $16.00
a bushel area if news on US soy imports and/or US soy export cancellations
continues to fall short of expectations".
Prices rise again
There is actually another way of helping balance the books,
in raising the estimate for the US crop last year – a factor which some
investors believe may be on the cards after the USDA last week cut to zero its
estimate for the soybean "residual".
Negative residual numbers have a habit of being resolved by
Still, soybeans for May, which in the last session closed
above $15.00 a bushel for the first time for a spot contract since July,
extended their winning run, adding 1.0% to $15.16 ½ a bushel as of 10:00 UK
time (04:00 Chicago time).
That extended further the spread too over November soybeans,
even though the contract gained 0.7% to $12.37 a bushel.
The oilseed was further helped by decent Chinese economic data,
showing growth of 7.4% in the first three months of 2014 – the slowest
quarterly expansion since late 2012, but beating expectations.
Indeed, the data were viewed as fuelling a rise of 1.2% to
2,678 ringgit a tonne in futures of Kuala Lumpur palm oil.
China is a big buyer of the vegetable oil, as it is of soybeans
'Weighty risk premium'
The oilseeds complex far outperformed grains, which found headway
difficult, albeit with investors reluctant to release much risk premium with Ukraine
tensions still high.
"Only time will tell if the Black Sea tensions spill over to
full scale conflict, and only time will tell if this has a meaningful impact on
grain trade from the region," Luke Mathews at Commonwealth Bank of Australia
"But for the time being, a weighty risk premium will remain
priced into wheat markets."
Furthermore, investors are still attempting to gauge the
extent of damage to US winter wheat from frosts this week, with more cold
weather to come, although harm is not expected to be huge.
On the weather front, the southern Plains winter wheat which
has suffered from a lack of moisture is expected to gain some rain relief.
World Weather said that "greater rain potential will begin
to occur over the weekend and into next week".
And for corn, warmer weather is on its way, which will help
accelerate spring sowings after their slow start.
CHS Hedging said: "Weather conditions are expected to warm
up nicely over the next 7-10 days, which should allow growers to either get
back in the fields or to get started with fieldwork and/or planting.
Besides better seeding prospects for corn, "we could see
spring wheat plantings increase significantly in South Dakota and Minnesota,
with favourable weather conditions", the broker said.
There are ideas too of raised moisture prospects in Russian
and Ukrainian grain-growing areas which have suffered something of a rain
deficit, Richard Feltes said.
He added that the "improving US weather pattern is clearly
less supportive [to prices] than the early April outlook.
"Importantly, persistently wet Midwest weather is notably
absent from current forecasts, while the much-below-temperature pattern that
has dominated North America for the last five months has finally moderated."
Chicago wheat futures for May fell 0.3% to $7.00 a bushel, while May
corn dropped 0.2% to $5.03 a bushel.
In New York, cotton
did better, adding 0.6% to 91.84 cents a pound for July delivery and 0.9% to
81.60 cents a pound for the new crop December contract after the China Cotton
Association cut its estimate for Chinese sowings of the fibre this year.
The CCA forecast the year-on-year drop in sowings at 12%, taking
them to 4.1m acres, compared with a forecast last month of a 10.5% drop.
Chinese cotton seeding prospects have been undermined by a
revamp of the subsidy process, which is centred only on the main producing
province of Xinjiang.