The key number in USDA’s round of September Crop Production and Supply and Demand estimates had to be the national average soybean yield coming in at 50.6 bushels per acre. This pushed expected production to 4.201 billion bushels, with both numbers well above the high end of pre-report estimates (50.1 bpa and 4.165 bb respectively). The immediate reaction was for November soybeans to fall from the 8 cents higher it was trading pre-report to 16 cents lower. But my question is this: Are soybeans really that bearish?
Remember that production, plus beginning stocks, make up only the supply side of a supply-and-demand table. Unlike corn, both old-crop and new-crop soybean demand was increased in the September reports. So much so that old-crop (2015-2016) ending stocks fell to 195 million bushels. This is significant for a couple of reasons. First, it lowers new-crop (2016-2017) beginning stocks, therefore offsetting some of the expected increase in total supplies due to larger production. Second, it keeps in place the dramatic annual miss by USDA when it comes to demand for U.S. soybeans and, subsequently, ending stocks.
Recall that in May 2015, in its initial 2015-2016 Supply and Demand report, USDA pegged soybean ending stocks at 500 mb. The drop to a 195 mb estimate equates to a drop of 61%. If you think that’s astounding, consider this: The previous two years have seen decreases of 68.8% (2013-2014) and 59.8% (2014-2015). In fact, DTN first projected a 2015-2016 ending stocks figure near 200 mb following that initial May 2015 estimate due to USDA’s known track record.
Looking at the rest of the 2016-2017 table shows total soybean supplies of 4.426 bb and total demand increasing to 4.061 bb (total demand for 2015-2016 was estimated at 3.949 bb) results in an ending stocks figure of 365 mb. This is the largest seen since USDA started guessing at new-crop estimates last May, and oddly enough following the same pattern for the 2014-2015 crop. Then USDA started off at 336 mb (May 2014), increased its ending stocks figure to 475 mb in September of that year, before ending with a Sept. 30 (2015) quarterly stocks figure of 191 mb. If 2016-2017 follows this same pattern, and the last three years indicate it should, then the Sept. 30 quarterly stocks number (2017) should be near 150 mb.
There wasn’t as much drama in corn. Going back to the August report, USDA’s much-hyped first survey-based set of estimates, the general consensus was that it would be difficult for USDA to increase its expectations for yield and production going forward. Recall that in August USDA jumped yield to 175.1 bpa with production coming in at a whopping 15.153 bb. In a game of grain-based “Deal or No Deal,” odds were that the September briefcase held smaller numbers.
It did, but not by much. USDA now estimates yield at 174.4 bpa and put total production at 15.093 bpa. The question now is: Are these numbers bullish or bearish? Those who say bullish would argue that the September guesses are smaller than those made in August, so should be viewed as bullish. Watching the market trade immediately after the reports were released, corn did seem to want to go higher but couldn’t pull the weight of a double-digit sell-off in soybeans. On the other hand, market bears will be quick to point out that these are still record-large production numbers at a time when both old-crop and new-crop demand estimates were reduced. Not by much mind you (old-crop 10 mb, new-crop 25 mb), but reduced nonetheless. And smaller demand at a time of record production is rarely viewed as long-term bullish.
In the end, then, the crop that looks the most bearish (soybeans) could actually be long-term bullish, while the crop that could be argued bullish (corn) may actually be more bearish in the long run. In other words, just another topsy-turvy report day.