Grain trade eagerly awaits stocks report

Grain trade eagerly awaits stocks report

Soybean supply numbers remain focus of trade despite potential record crop year.

ON June 30, the U.S. Department of Agriculture is expected to release its latest quarterly "Grain Stocks" report, along with forecasts of planted and harvested acreage.

While most of the focus over the last month had been primarily on the progress of the new crops, an extremely tight soybean supply monopolized traders' attention ahead of the report.

According to University of Illinois agricultural economist Darrel Good, both reports will provide important information to the soybean market. He said the acreage forecasts should have more important price implications than the stocks estimate because soybean consumption is mostly already known, but the stocks estimate was actually more eagerly anticipated.

"Because the magnitude of both the domestic crush and exports during the previous quarter are mostly known, the stocks estimate is expected to reveal the smallest June 1 inventory in 37 years," Good said. "However, there is always room for some surprise in the June 1 stocks estimate as the magnitude of seed and residual use in the previous quarter is revealed."

Rabobank recently released its "North American Agribusiness Review" in which it weighed in on the soybean dilemma. With the National Oilseed Processors Assn.'s (NOPA) reported crush running at the third-highest pace on record, Rabobank said the current crush and export levels are expected to deplete the 287 million bu. supply of old-crop soybeans.

Based on NOPA estimates, Good said the group's members crushed 9.3% more soybeans from March through May this year than during the same three months last year.

USDA no longer makes quarterly crush projections, but NOPA estimates have represented 95.4% of the USDA marketing-year estimates in the past two marketing years.

"Assuming that ratio for the most recent quarter, the NOPA crush of 415.3 million bu. points to an industry total of 435.3 million bu.," Good said.

Export estimates are available from the Census Bureau through April, whereas USDA estimates are available for the entire quarter. Through April, cumulative marketing-year Census Bureau export estimates exceeded USDA export inspection estimates by 23.5 million bu.

"Assuming that margin persisted through May, exports for the March-May quarter are estimated at 186.7 million bu.," Good said.

Census Bureau estimates of soybean imports were also available only through April. Imports in March and April totaled 10.7 million bu., and cumulative imports for the year totaled 31 million bu.

"If imports are to reach the 90 million bu. projected by USDA, imports during the last four months of the marketing year need to average 14.8 million bu. per month," Good said. "If May imports were at that level, March-May imports would have totaled 25.5 million bu."

Seed and residual use of soybeans during the March-to-May quarter have ranged from 11.7 million to 62.7 million bu. in the previous 10 years and averaged 41.2 million bu. — very close to the 47.6 million bu. average in the past two years.

"If use this year was at 47.6 million bu., total consumption of U.S. soybeans during the March-May quarter would have been near 669.6 million bu.," Good said. "With March 1 stocks of 992.3 million bu. and quarterly imports of 25.5 million bu., June 1 stocks would have totaled 348.2 million bu.

"Unless June 1 stocks are 25-30 million bu. larger than expected, the domestic soybean crush during the final three months of the marketing year will have to be much smaller than during the same three months last year and/or imports will have to exceed the projected level in order to maintain year-ending stocks at a pipeline level," Good added. "Stocks below the expected level would obviously require a larger drop in the domestic crush or increase in imports."

Rabobank echoed Good's assessment, stressing that record reductions in the crush and exports, as well as record import levels, would be needed to meet demand.

"To reach USDA's projections, the U.S. will need to import, on average, 14.9 million bu. per month for the remaining four months of the crop year. That level of imports would be 3.0 million more than the one-time record set in July 2013," Rabobank said.

Regarding the June 30 stocks report, Rabobank said while the trade is hoping it will include news of additional old-crop soybeans, its analysts think "a bearish surprise is unlikely given the bushels needed to bring U.S. soybean supplies to a more comfortable level."

Ahead of the report, the average trade estimate for U.S. quarterly stocks of soybeans was 378 million bu., while the average estimate for corn stocks was expected to be 3.722 billion bu. (Table 1).

Average trade projections for 2014-15 planted acres revealed that the trade expected USDA to increase the numbers.

Soybean planted area was expected to increase from the 81.493 million acres estimated in March to 82.154 million acres in the June report.

USDA's March report projected planted corn area at 91.691 million acres, but the trade was anticipating that USDA would also raise that number slightly to 91.725 million acres (Table 2).

"Much of the uncertainty about the June acreage forecasts relative to March intentions centers on northern producing states, where wet conditions delayed corn planting and may have resulted in some switching to soybeans," Good said. "Extreme wet conditions, however, may also result in some acreage not (getting) planted at all. Those prevented plantings may not all be revealed in the June surveys.

"For the most part, expectations are that the upcoming forecast of planted acreage will not be smaller than March intentions," Good concluded. "If large acreage is confirmed, prospects for a record-large soybean crop and a buildup in stocks during the year ahead will be maintained."

 

Crop progress

The latest USDA "Crop Progress" report revealed another week of good advancement for the growing season. Soybean planting and growth continued to be ahead of the five-year average, with 95% of soybeans reported as planted and 90% emerged.

Soybean crop conditions did decline after heavy rains and hail hit the northern Corn Belt recently, but the decline was minimal. Soybeans considered in good condition declined from 60% to 58%, while those rated in excellent condition actually increased from 13% to 14%. Soybeans in poor condition did increase from 3% to 4%, but beans considered in fair condition remained the same, at 23%.

Corn conditions followed a similar pattern, with a decrease from 59% to 56% in plants considered good and a 1% increase — from 17% to 18% — in corn considered in excellent condition. A 1% increase was also reported for corn in fair and poor condition, at 21% and 4%, respectively.

 

Market watch

While some of the crop was affected by the recent heavy rains in the Midwest, drier weather and a decent "Crop Progress" report eased traders' worries for the first part of last week, which sent prices lower. However, forecasts for more rain and the June quarterly stocks report lent support to the markets as the week came to a close.  

Soybeans started the week with nearby prices closing at $14.2475/bu., but last Tuesday's close of $14.135/bu. clearly reflected the market's reaction to the good USDA "Crop Progress" report. Concerns about the tight supply of old-crop soybeans, a wet forecast and large export sales sent the market higher on Wednesday and Thursday to close at $14.1575/bu. and $14.37/bu., respectively.

Unlike soybeans, corn really didn't have much to offer to strengthen its prices. July contracts settled at $4.44/bu. last Monday, and while the market dipped slightly last Tuesday and Wednesday, the nearby prices for corn also reacted to the rainy weather forecast. Late in the day on Thursday, corn markets got some support from the soybean market and closed at $4.4275/bu.

 

Ingredient watch

Rabobank reported that it expects lower prices for dried distillers grains with solubles (DDGS) to continue at least through the summer as China's government is showing no signs of lifting current import restrictions.

However, the bank suggested that the tight supply of soybeans could provide some support for DDGS prices at least until new-crop supplies become available this fall.

A veteran protein trader recently told Feedstuffs that higher soybean meal prices, although dropping recently, have strong basis levels, causing strong demand for alternative protein sources like meat and bone meal.

"Everyone's trying to talk down meat and bone meal prices, but they are remaining pretty resilient for the most part," the source said.

According to the trader, feather meal markets recently tanked but then suddenly really firmed up. The recent strength, he said, mainly resulted from exports but also from higher fish meal prices. "Demand is firming it up more than anything," the trader said.

Blood meal prices tanked as well but also recently rebounded. Everyone backed away from blood meal following the porcine epidemic diarrhea virus issue, but it has recovered well, the trader explained.

 

1. U.S. quarterly stocks on June 1, billion bu.

 

Average

Trade

USDA

USDA

 

est.

range

March est.

2013 final

Corn

3.722

3.046-3.950

7.006

2.766

Soybeans

0.378

0.334-0.440

0.992

0.435

Wheat

0.598

0.560-0.633

1.056

0.718

 

2. 2014 corn, soybean and wheat plantings, million acres

 

Average

Trade

USDA

USDA

 

est.

range

March est.

2013final

Corn

91.725

91.000-92.200

91.691

95.365

Soybeans

82.154

80.500-84.000

81.493

76.533

Wheat

55.818

54.800-57.000

55.815

56.156

Sources for Tables: Reuters, USDA.

 

Volume:86 Issue:26

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