Soybean Outlook Poised to Tighten Further?

A further drop in 2020 yields or the potential for heavier-than-expected export demand could be all that it takes to stir up even more excitement in the soybean market.

Released last week, the USDA’s September supply-demand update hacked projected 2020-21 US soybean ending stocks to 460 million from 610 million in August, a reduction that in turn trimmed the soybean stocks-to-use ratio to a mere 10% - potentially the lowest since the 2017-18 crop year.

“You see ending stocks as a percentage of use drop below 10% and things can get really interesting in a hurry,” Purdue University agricultural economist James Mintert said in a webinar Friday. “And we’re kind of on that bubble right now.”

The soybean market has already been frothy, trading around two-year highs and advancing on Monday for the 14th time in 15 sessions.

According to Mintert, it is not just pie in the sky to believe the 2020-21 soybean stocks-to-use ratio could tighten further – and prices climb even higher - either because demand ends up stronger than currently forecast, or this year’s crop falls short of expectations.

On the supply side, the USDA already lowered its 2020 average soybean yield forecast from last month by 1.4 bu/acre to 51.9 bu. However, Mintert noted a marked deterioration in US soybean crop condition ratings over the past number of weeks, mostly into reaction to continued dryness in parts of the western Corn Belt but also the impact of an Aug. 10 derecho. And given that soybean yields may still have the potential to be impacted by the weather, he said there is the possibility that yields could fall further yet.

“There is more risk on the soybean yield side (versus corn) from this point going forward,” he said. “We’ve got weather opportunities here at least for another week or two, maybe a little longer.”

In Monday’s weekly crop progress report, the USDA pegged the national soybean crop at 63% good to excellent, down from 72% just a month earlier. The No. 2 soy production state of Iowa perhaps suffered the worst in that span, falling to 48% good to excellent from 62%.

Another drop in the average yield in the USDA’s October update would in turn lower production below the USDA’s September forecast of 4.313 billion bu.

At the same time, Mintert said the pace of Chinese buying might suggest a future upward revision in the export forecast, which could tighten the bottom-line outlook for soybeans as well. The USDA held its 2020-21 export forecast unchanged in its September update at 2.125 billion bu but it did raise exports by 75 million bu from July to August.

“Given that yields could come down a bit, and given that exports could be a little stronger, there’s some optimism regarding soybean prices,” added Michael Langemeier, another Purdue ag economist who took part in the webinar.

Indeed, the USDA jumped its 2020-21 average soybean price forecast by 90 cents from August to US$9.25/bu – as steep a monthly increase that Mintert admitted he can ever remember.

“That’s a big, big move,” he said.

Source: DePutter Publishing Ltd.

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