USDA Acreage Report May Bring Surprises to the Soybean Market

USDA is expecting the U.S. to produce a record high 3.635 billion bushels of soybeans this fall and, so far, those plans are on track. USDA said on June 2 that 78% of the soybean crop was planted and 50% of it had emerged, close to the five-year average pace. If the 2014-15 season closed in line with USDA's May estimates, U.S. ending stocks at 9.6% of annual use would be significantly higher than the current season's record low of 3.8% and correspond historically with March 2015 soybean prices at roughly $11.65 a bushel. Actual market prices can diverge a long way from their historic valuations and there is no guarantee that these May estimates will hold up through the year, but the point is that current market expectations justify lower new-crop soybean prices ahead.

So far, the bearish outlook for new-crop soybeans seems reasonable, but the road to harvest may hold some surprises along the way. In addition to the perennial weather clues we will be watching for, here are two key market issues I will be paying attention to as we work our way through 2014.

First, it would be a mistake to overlook the importance of USDA's Acreage Report on June 30. The report has surprised markets before and is a potential market-mover again in 2014. After USDA's Prospective Plantings Report on March 31, everyone seems to "know" corn acres will be down this year and soybean acres will be a record high 81.5 million or so. Recent planting delays in the northern states are creating guesses that soybean acres may be even higher, but I am not so sure. A close look at new-crop corn and soybean futures prices in 2014 shows that, compared to USDA's production cost estimates for 2013, December corn futures were offering the more profitable return for the first four and a half months and November soybeans have only been the more profitable choice since May 15.* Also consider that some producers stay with disciplined planting rotations and some may have been scared away from planting soybeans by this spring's talk of record South American crops. I realize USDA's March 31 estimates boast a 90% confidence interval of roughly 3%, but 90% is not a guarantee. Even a 3% smaller planting would put soybean acres at 79 million and point to an eighth consecutive year of below-average soybean supplies in 2014-15. I do not know what USDA will say on June 30, but there is risk in this year's acreage estimates.

The next issue is related to an article that I wrote on Feb. 20, "Large Global Soy Supplies? Malarkey!" The article explains a common confusion that results from how USDA reports world ending stocks of soybeans in its monthly WASDE report. Ending stocks for Argentina and Brazil are based on an artificial Oct. 1 to Sept. 30 crop year and end up looking much larger than they actually are because USDA's numbers are not true ending stocks. Soybean supplies for Brazil continue to be drawn down until Jan. 31 and Argentina's supplies shrink until March 31. If we correct this error by using local marketing years, USDA estimates Brazil's ending soybean stocks at 329 million bushels for 2014-15 instead of the 902 million bushels cited in the May WASDE report.** Similarly, USDA estimates Argentina's ending stocks for 2014-15 at 552 million bushels, far less than the 1.145 billion bushels posted in the WASDE report.*** Even with those adjustments, the combined total of 881 million bushels of ending stocks for both countries looks suspiciously overstated.

Why do I say that? Because in spite of all the bearish press about this year's record soybean harvest and large supplies in South America, USDA is expecting exports from Brazil to increase by a whopping 18 million bushels in 2014-15. For Argentina, no increase in exports is expected. Once again, we are looking at a year where current soybean supplies are historically scarce and the world is relying on the U.S. to come through with more production. Much like the situation we found ourselves in a year ago, the difference between a bearish outcome and a powerfully bullish one in 2014 could swing on 100 million or 200 million bushels of U.S. production.

If you listen to the free news sources on the internet, the outlook for new-crop soybeans is bearish and it's only a matter of time before the record harvest comes busting in. The real situation, however, holds more uncertainty than many want to talk about and that is probably one reason November soybean prices are holding stubbornly to their uptrend. A close below $12.06, if it happened, would give more credibility to the bearish arguments for soybeans, but until then I will wait with an open mind for USDA's June 30 Acreage Report. Stay tuned to DTN as the market for new-crop soybeans is shaping up to be another nail-biter in 2014.

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