A Detached View Of The Soybean Market

18/08/13 -- Here I am, not quite "sitting at the dock of the bay" but sat in the bar at the hotel overlooking the pool with the "dock" or jetty just a short hop away. I'm enjoying a beer (obviously) as there isn't much else to do on the day that you are leaving is there? It's currently 4 hours until we catch the speedboat to the airport, so I'd better try and pace myself (yeah, as if).

So what else is there for it, in order to not drink beer quite so swiftly, it's time to cast an eye over the week's proceedings and ponder what the markets might do going forward.

I've unearthed one or two interesting "facts" which I'd like to impart.

First off, looking at Monday's USDA report, one of the main surprises slung our way there was the huge drop in US soybean ending stocks for 2013/14. You will recall that these were slashed from 295 million bushels in July to only 220 million this month.

When you dig slightly deeper you will note that production was reduced by 165 million bushels, from 3.42 million to 3.255 million. That is "only" 240 million bushels above what was considered to be an absolute disaster last year.

Had the USDA not "cooked the books" on the demand side and simply taken that 165 million straight off the bottom line then we'd have been presented with 2013/14 ending stocks of only 130 million bushels. That's barely higher that the 2012/12 "line in the sand" of 125 million that they've stood by for months now - a level regarded as bordering on "critically low" and that seemingly warranted US soybean prices being far higher than they are currently.

Whilst the USDA was happily balancing the books by lowering US export potential, it was about to release Thursday's weekly export sales report revealing that the recent price slump had encouraged sales of  close to 1.9 MMT - the largest weekly total in around 18 months.

As of last Monday, the US had already sold 41% of the USDA's projected target for 2013/14, versus 27% normally. Following Thursday's numbers we now have a situation where cumulative sales for 2013/14 already stand at 47.5% of the USDA forecast for the season versus a 5 year average of only 30%. 

It would therefore I think seem to be a fair conclusion to draw at this stage that the USDA's 2013/14 soybean export target is too low and needs to be revised higher at some point. It would also seem that 2013/14 ending stocks are possibly still too high at 220 million, and could in fact end up significantly lower than that, especially if we factor in that old crop carry-in is probably NOT going to be 125 million bushels, but will in fact be lower than that.

Potentially then, that indicates that as far as US soybean supply and demand and stocks levels are concerned, 2013/14 might end up being just as tight as 2012/13 was.

With the latest news that 1.6 million acres of intended US soybean area never got planted this year, and the possibility of an early frost cutting yields further this year is a scary one.

I'm fully aware that the South American cavalry are supposed to be coming again, but they are at least 5-6 months away yet. What happens meanwhile IF we do get a frost scare and/or funds decide to close out their short position, or even start to rebuild their normal longs?