Soybeans top $15 as US supplies cut to record low

Soybean futures rose temporarily back above $15 a bushel for the first time in eight months after the US cut hopes for domestic supplies to the tightest on record, in a report which also offered some support to corn prices.

Soybean futures for May delivery jumped 2.0% to $15.12 a bushel in Chicago, the highest for a spot contract since July, after the US Department of Agriculture surprised investors by reducing its estimate for domestic stocks at the end of the season to 135m bushels (3.67m tonnes).

While only a small downgrade, of 10m bushels, from the previous forecast, the inventory number was significant as, compared with demand, it matched the lowest on record, the 4.0% set 50 years ago.

This so-called stocks-to-use ratio is a key metric for pricing, reflecting the extent to which buyers' need to compete to secure supplies.

The USDA, in its monthly Wasde crop report, also downgraded its forecast for the harvest in Brazil, the biggest rival exporter, by 1.0m tonnes to 87.5m tonnes, "with a higher harvested area more than offset by lower yields".

'Higher expected export level'

The Wasde briefing also offered a potentially bullish datapoint for corn investors, in cutting the estimate for domestic inventories at the close of 2013-14 by 125m bushels to 1.33bn bushels.

Wasde soybean estimates, change on previous and (on market forecast)

US end stocks, 2013-14: 135m bushels, -10m bushels, (-4m bushels)

World end stocks, 2013-14: 69.42m tonnes, -1.22m tonnes, (-720,000 tonnes)

Argentine harvest, 2013-14: 54.0m tonnes, unchanged, (-150,000 tonnes)

Brazilian harvest, 2013-14: 87.5m tonnes, -1.0m tonnes, (+70,000 tonnes)

Although representing stocks still viewed as ample by investors, the downgrade was larger than they had expected, and reflected a 125m-rise to the forecast for US exports, which have continued to surpass expectations, in part thanks to the grain's relative cheapness compared with rival wheat.

"Continued strong export sales and a rising weekly shipment pace for US corn during March support the higher expected export level, as does an increase in projected global corn demand," the USDA said.

The estimate for world corn demand was raised by 6.6m tonnes to 950.3m tonnes, also enough to mop up increased export expectations for Russia, South Africa and Ukraine.

China downgrade

However, the Wasde was less supportive to wheat prices, raising the estimate for world inventories by 2.9m tonnes to 186.7m tonnes, more than the market had expected.

Wasde corn estimates, change on previous and (on market forecast)

US end stocks, 2013-14: 1.331bn bushels, -125m bushels, (-72m bushels)

World end stocks, 2013-14: 158.47m tonnes, -470,000 tonnes, (+280,000 tonnes)

Argentine harvest, 2013-14: 24.0m tonnes, unchanged, (+50,000 tonnes)

Brazilian harvest, 2013-14: 72.0m tonnes, +2.0m tonnes, (+2.34m tonnes)

The upgrade reflected a lower estimate for feed use of wheat in the US and, in particular, China, where output in the poultry sector, a big user of the grain, has been curtailed by the impact of the bird flu epidemic in sapping demand.

Chicago wheat futures for May stood 1.5% lower at $6.71 a bushel with 45 minutes of trading to go, while corn for May was down 0.5% at $5.04 a bushel.

May corn futures initially rose 1.0% to $5.19 a bushel, a seven-month high for a spot contract, before retreating on a decline attributed to profit-taking, as well as to some disappointment that the USDA had not raised hopes for demand for the grain by ethanol plants and livestock producers too.

Corn vs wheat

"All the change was within the exports," said Steve Kahler, chief operating officer at Teucrium Trading, an issuer of exchange traded commodity products.

Wasde wheat estimates, change on previous and (on market forecast)

US end stocks, 2013-14: 583m bushels, +25m bushels, (no difference)

World end stocks, 2013-14: 186.68m tonnes, +2.87m tonnes, (+3.03m tonnes)

"Both ethanol production margins and livestock production margins are still very strong, but the USDA chose to leave numbers on both of these unchanged."

Investors were disappointed that "there was a notable reduction in wheat feeding, but the USDA did not offset with higher corn feeding".

On ethanol production Rich Nelson, chief strategist at Chicago broker Allendale, said that the USDA "has been resistant against changing its whole-year estimate" until the Environmental Protection Agency issues long-awaited revisions to mandated biofuel consumption levels.

'Cargoes from South America'

The soybean revisions factored in an upgrade of 50m bushels to a record 1.58bn bushels (43.0m tonnes) in the forecast for US exports in 2013-14, after a much-expected wave of cancellations of orders last month failed to appear.

"US exports have remained strong, especially to China, where imports from the US have already exceeded the previous marketing-year record," the USDA said.

The estimate for US soybean imports was raised by 30m bushels to an all-time high of 60m bushels, a revision Mr Nelson termed "very reasonable considering the widely-reported cargoes from South America that are landing on our shores".

The first of what are expected to be a series of soybean cargos from Brazil is rumoured to have arrived in the US on Monday.

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