Soybean Surprises

By Alan Brugler
DTN Contributing Analyst

USDA sprung a number of different reports on grain producers Thursday morning. They included weekly Export Sales, final Crop Production, quarterly Grain Stocks and World Supply and Demand (WASDE) reports. Several of the numbers were outside the range of trade estimates coming into the reports. If you had unpriced soybeans, you had to be thinking "I love a surprise!" as futures surged 22 cents to 29 cents in the old-crop contracts. New-crop beans, presumably receiving the bulk of a shortfall in winter wheat plantings, were still able to rally 12 cents to 18 cents.

What comes next?

Let’s look at those surprises, with an eye to their durability and sustainable impact on price. The National Ag Statistics (NASS) folks surveyed more than 80,000 farmers for these reports, their largest effort of the year. That data indicated 300,000 fewer soybean acres were actually planted and harvested. NASS also trimmed the national average yield by 0.4 bushel per acre to 52.1 bpa. That is still a record, but doesn’t stick out as far above trend yield.

Traders actually did a pretty good job of estimating first-quarter consumption. Dec. 1 soybean stocks were 2.895 billion bushels, which is 58 million below the published trade average. The 54 mb miss on production explains all but 4 mb of the stocks surprise. The reduced production flowed through to a surprisingly tight U.S. ending stocks estimate of 420 mb. That isn’t truly tight, but a more modest trim of 15 mb to 20 mb (to 460 million) had been expected.

USDA’s WASDE crew was conservative with their South American adjustments. They hiked Brazilian production by 2 million metric tons to 104 mmt, with trade estimates as high as 106 mmt, but the average trade guess averaged only 102.4 mmt. The hike (and a 400,000 metric ton increase in China) had no impact on global ending stocks, with the USDA estimate dropping to 82.32 mmt from 82.85 mmt in December. USDA did have to hold projected U.S. exports unchanged from last month because of the increased competition from Brazil. Another quasi-surprise in the report was the lack of a change in the Argentine soybean estimate. Planting delays and both wet and dry regions had private estimates and even the U.S. agricultural attache looking for 54 mmt to 55 mmt. Late planting is still possible, so the government analysts decided to wait a month or two before making any adjustments.

The meal market reaction to report day was also a surprise but helped fund the bean rally. Meal was up $13.50 per ton despite no change in projected ending stocks or cash average price. USDA cut production 200,000 metric tons, which might be supportive. They also trimmed exports by 200,000 mt. They had to do the latter, with U.S. export commitments 7% smaller than last year and only 54% of the full-year forecast. We would typically be 60% sold by now. The Chinese decision to raise duties on imports of U.S. DDGS is also expected to force more DDG feeding in the United Stated by pricing U.S. DDGs out of the Chinese market. Typically, both meal and corn take a hit when extra DDGs (and other ethanol byproducts) are injected into the U.S. market place.

So where do all these surprises leave us? Technically, the bulls are in good shape, with the spec funds long and sentiment readings like stochastics still in neutral territory. A retest of a downtrend line off of the double top in November is certainly a possibility for March futures. That said, the 15- and 30-year seasonal patterns show March beans typically dropping from shortly after the USDA reports into the end of the month. And there is that question about the legitimacy of the soybean meal move. The weaker U.S. dollar also likely played a role in the commodities buying spree Thursday. Bean bulls will want to see additional weakness in the dollar to make U.S. soybean and meal exports more affordable as new-crop South American beans begin to provide more competition.

Alan Brugler can be reached at alanb@bruglermktg.com

(AG/BAS)