Oil Crops Outlook: Soybeans Rally as Drought Grips Argentina

U.S. soybean exports for 2017/18 are forecast down 60 million bushels this month to 2.1 billion based on a substantial lag in shipments and sales commitments. The poorer prospects for 2017/18 soybean exports may boost U.S. season-ending stocks to 530 million bushels, compared to last month’s forecast of 470 million. USDA’s forecast of the U.S. season-average farm price is narrowed to $8.90-$9.70 per bushel from $8.80-$9.80 last month.

Domestic Outlook

Despite Export Decline, Soybean Prices Strengthen

U.S. soybean exports for 2017/18 are forecast down 60 million bushels this month to 2.1 billion based on a substantial lag in shipments and sales commitments. Cumulative export inspections of soybeans through February 2 totaled 1.275 billion bushels, down 212 million bushels from the year-earlier pace. Record export shipments for February-August 2018 are needed even to attain this lower forecast level.

A leading contributor to this season’s gap in U.S. soybean trade is competition from Brazil. Due to a historically large supply, exporters from Brazil were able to supply the global market much longer than usual. Soybean shipments from Brazil for September 2017-January 2018 exceeded the year-earlier level by 312 million bushels.

Another constraint for U.S. export demand this season is a 30-year low in the protein level of the soybean crop. According to a 2017 survey of U.S. soybean crop quality conducted for the U.S. Soybean Export Council, the average protein concentration of the crop was 0.4 percentage point below the 2016 crop and 1 percentage point below its 30-year average.

The poorer prospects for 2017/18 soybean exports may boost U.S. season-ending stocks to 530 million bushels, compared to last month’s forecast of 470 million. If realized, this expected carryout would be exceeded only by the 2006/07 record (574 million bushels). Even so, the soybean market has been less focused on the burdensome U.S. stocks outlook than on a deteriorating Argentine crop, which sparked a January rally, by 20-25 cents per bushel, in soybean futures contract prices.

The impact on farm prices is muted as producers have already marketed a high percentage of the crop at a lower price level. USDA’s forecast of the U.S. season-average farm price is narrowed to $8.90-$9.70 per bushel from $8.80-$9.80 last month.

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A similar strengthening in soybean meal prices led to a higher forecast of the 2017/18 average to $305-$335 per short ton from $295-$335 last month. In contrast, soybean oil prices declined in January to an average of 31.6 cents per pound from 32.3 cents in December. The soybean oil market was weighed down by the high rate of crushing, as the December 2017 soybean crush set an all-time high for any month. At the same time, December soybean oil use declined, which caused an accumulation of stocks.

Abundant global supplies of palm oil are also preventing soybean oil prices from establishing much momentum this season. The 2017/18 average price was forecast down by 1 cent per pound this month to 31-34 cents.

Full report.

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