Torrid soybean export pace hints at bigger supplies

by Laura Lloyd
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STEPHENSON, VA. — The U.S. soybean market is on the lookout for cancellations from China as the harvest season in Brazil and Argentina fast approaches, making lower-priced supplies available to the world’s top importer of the oilseed.

But Paul Meyers, vice-president, commodity analysis, at Foresight Commodity Services, Inc., thinks market participants are overdoing the scenario by predicting cancellations of as much as two million to three million tonnes in the near future.

“There will be some cancellations but not as much as what the market is saying,” he said. Some other market observers think cancellations will be at around 1 million tonnes, a number Mr. Meyers thinks is reasonable.

A moderating outlook for Chinese cancellations of U.S. soybeans and a dry weather outlook in growing regions of South America have been contributing factors to the brisk gains in soybean futures posted Tuesday morning after a Monday with markets closed for Presidents’ Day. The nearby soybean contract was up 18c to $13.55½ by midmorning.

But Mr. Meyers does think there is a key bearish factor that may be tempering potential gains for soybean futures: the likelihood that the U.S. Department of Agriculture is understating the size of the 2013 crop, currently projected at 3.29 billion bus, by as much as 30 million to 50 million bus.

“Prices would be even higher than they are now if the crop size weren’t larger,” he said. “The current export pace isn’t sustainable.” He said U.S. export commitments (shipments plus outstanding sales) so far in the 2013-14 crop year are 105.1% of U.S.D.A. marketing year forecasts — as high as they have ever been at this juncture in the crop year.

“Something doesn’t add up and a bigger crop would help explain the data,” he said.

Mr. Meyers acknowledged that a definitive 2013 crop size will not be known until the end of September 2014, but there will be some guidance from the Grain Stocks reports due from the U.S.D.A. at the end of March and the end of June.

While China might not be cancelling as many existing orders for U.S. soybeans as expected, the behemoth buyer inevitably will start switching to South American supplies as U.S. supplies dwindle later this year, Mr. Meyers said. He noted that in the current quarter ending Feb. 28, the U.S. will export to all destinations at total of 690 million bus, up from 531 million bus in the same quarter of 2012. In the March-May quarter, the United States is expected to export 145 million bus, up from 125 million bus in the same quarter a year ago, Mr. Meyers said. The final quarter of 2013-14 concluding at the end of August, U.S. exports may fall to only 45 million bus of U.S. soybeans.

“There will be a dramatic drop-off in U.S. exports to China and other destinations,” he said, pointing to domestic supplies that will become uncomfortably tight toward the end of the current crop year. “There is no other choice.”

The U.S.D.A. has characterized China’s appetite for soybean oil as “insatiable” so its buying will merely switch to South America. Mr. Meyers said Brazil may be able to overcome some of the logistical problems at its ports that have slowed down shipments in the past, and they are likely to be able to export more soybeans this spring and summer when the new U.S. crop is planted.

Overall demand from China almost guarantees that the United States will emerge from the current crop year with the minimal carryover of 150 million bus reported in the most recent WASDE, Mr. Meyers said, which keeps domestic soybean prices on a knife’s edge of supply and demand.
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