Soybean crop increases, but supply to dip to historic low

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There are going to be more soybeans grown across the United States this year, but that increase will be dwarfed by the amount of soybeans that will be used and exported. The scenario will mean U.S. soybean supplies will fall to a mere 16 days of inventory, according to American Farm Bureau Federation analysts.

According to the Agriculture Department’s World Agricultural Supply and Demand Estimates report for May 2012, this year’s soybean crop is projected at 3.205 billion bushels, an increase of 149 million bushels from 2011. That boost, however, is not projected to keep up with strong demand from exports, which are expected to increase by 190 million bushels and the crush use of soybeans, which will increase by 10 million bushels.

“When all is said and done, our ending stocks of soybeans will drop to just 145 million bushels,” said AFBF Senior Economist Todd Davis. “That equates to a 4.4 percent stocks-to-use ratio, which is just over a two week supply of soybeans at the end of the year. That will tend to be a bullish factor and should keep soybeans positioned as the market driver.”

Prices will reflect soybean stocks being projected at historically low levels. The 2012-2013 U.S. marketing year average prices is pegged at $13 per bushel, which would eclipse the 2012 record of $12.35 per bushel, Davis explained.

Davis said there are several factors leading to this perfect storm for soybeans. South American soybean production continues to decline, with Argentina’s production reduced by 91.8 million bushels and Brazil’s production reduced 36.7 million bushels from April. According to Davis, as the harvest wraps up in South America, the market is now grasping a better understanding of how their drought cut into production. On the world level, ending stocks for soybeans will be the tightest they have been since the 2007-2008 marketing year, 53.24 million metric tons, or a stocks-to-use ratio of 15.5 percent.

This report also carried significant news on the corn side, Davis said. The 2012 U.S. corn crop is now projected at 14.8 billion bushels, which would be a record if realized. That is 2.4 billion bushels more than what was harvested in 2011.

USDA projected a record 2012 yield of 166 bushels per acre based on the rapid pace of planting and crop emergence, according to Davis. Demand for corn is also projected to increase due to increased feed use (up 900 million bushels) and exports that should increase by 200 million bushels.

“Corn production will outpace stronger demand and that will likely result in lower prices, but those prices will help fuel the robust demand we see both domestically and abroad,” Davis explained.

Davis said 2012-2013 ending stocks for the domestic corn supply will be at 1.88 billion bushels. That is an increase of more than 1 billion bushels. The stocks-to-use ratio is projected to increase to 13.7 percent, which is the largest since 2009-2010. Davis said that because of the large increase in corn stocks, the U.S. marketing-year average price is projected to decline sharply to $4.60 per bushel, compared to the 2011-2012 price of $6.10 per bushel.

But there was a little surprise in the latest report, according to Davis.

“There was a curveball regarding old-crop corn,” Davis said. “The May report actually increased ending stocks of last year’s crop by 50 million bushels. This came as a fairly significant surprise, as pre-report estimates projected a decline in stocks due to stronger demand. According to the report, that demand never materialized because the amount of corn used for feed was reduced by 50 million bushels to reflect a greater use of wheat in feed rations.”

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