Soybean price outlook dampened by prospects for record production

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Record Sown Acreage Heralds Bumper Soybean Crop

Last month, USDA’s Acreage report indicated that U.S. farmers this year planted an all-time high 84.8 million acres of soybeans—topping the previous record of 77.5 million 5 years ago. U.S. sown acreage is 3.3 million acres higher than farmers’ March intentions and 8.3 million higher than last year. States that are setting new sown acreage records for soybeans include Minnesota, North Dakota, South Dakota, Nebraska, Ohio, Michigan, and Wisconsin. Part of this year’s acreage increase for soybeans comes at the expense of corn, which declined by 3.7 million acres. Most of the soybean expansion, however, stems from increases in total cropland farmed. In North Dakota, Minnesota, and Iowa, likely reductions in prevented planting supported the biggest acreage gains.

Using a soybean area for harvest estimate of 84.1 million acres and a projected yield of 45.2 bushels per acre, USDA forecasts 2014/15 production at a record 3.8 billion bushels. The increase over last year’s crop would be 16 percent. While flowering is just starting in many areas, its progress is not unusual. Early development of crops is benefiting from plentiful soil moisture and an absence of extreme heat. June precipitation was at least double the average level for a broad swath of the main Midwestern soybean-growing region. Overall, soybeans are in fine shape, with 72 percent currently rated in good-to-excellent condition. The exceptions are parts of northern Iowa and southern Minnesota—where excessive rains caused flooding—and the Southeast, which had some crop deterioration due to a recent drying trend.

U.S. competitiveness in the global soybean market may flourish with such extraordinarily abundant supplies. Soybean exports for 2014/15 are forecast 50 million bushels higher this month to 1.675 billion. Similarly, better trade prospects in 2014/15 for soybean meal and soybean oil contribute to this month’s 40-million-bushels increase in the soybean crush forecast to 1.755 billion bushels. Robust exports for soybean meal should be supported by lower prices, which USDA forecasts declining to $350-$390 per short ton compared to a 2013/14 average of $480. Soybean meal shipments abroad in 2014/15 could edge up to 11.75 million short tons from 11.65 million this year. Likewise, an enhanced market share could expand U.S. exports of soybean oil to 2.1 billion pounds from 1.7 billion in 2013/14.

Lower prices next year are also expected to aid a modest increase in domestic consumption of soybean meal. For 2014/15, domestic soybean meal disappearance is forecast up 1.7 percent to 30.1 million tons. For soybean oil, however, domestic use may stagnate as its consumption for foods is pressured by rising supplies of canola oil. Coupled with the absence of a policy to advance biodiesel consumption, domestic soybean oil use could dip 3 percent to 18.2 billion pounds. The expected outcome next year is for a gradual accumulation of soybean oil stocks. Soybean oil prices in 2014/15 are forecast to average 36-40 cents per pound, compared to last month’s forecast at 37-41 cents and the 2013/14 average of 39 cents per pound.

Even with an improvement in soybean demand in 2014/15, it is likely to be far exceeded by supply gains. Season-ending soybean stocks are forecast to nearly triple to an 8-year high of 415 million bushels. A better defined outlook for surplus stocks has precipitated a sharp decline in new-crop futures prices to below $11 per bushel. USDA expects the U.S. average farm price for soybeans to decline in 2014/15 to $9.50-$11.50 per bushel. This is down 25 cents from last month’s forecast and the 2013/14 forecast of $13.00 per bushel. The season-average price will be supported to some extent by contracts for fall delivery that were priced above $12 per bushel earlier this year.

June Soybean Stocks Higher Than Anticipated

USDA raised its forecasts of 2013/14 soybean exports and domestic crush this month to reflect a robust use to date. Soybean exports were forecast 20 million bushels higher to 1.62 billion while the forecast crush was raised 25 million bushels to 1.725 billion. Expected soybean imports were shaved 5 million bushels to 85 million as the price differential between the United States and Brazil has recently narrowed. Import forecasts for soybean meal and soybean oil were also trimmed.

U.S. soybean stocks on June 1 totaled 405.2 million bushels according to last month’s Grain Stocks report—the lowest June stocks since 1977. Although stocks at the end of the third quarter were down from 434.7 million bushels a year earlier, they were higher than the estimated supply and cumulative use would suggest. As a result, USDA revised its residual estimate for 2013/14 to -69 million bushels.