The soybean market: Two contrasting stories

Dr. Kurt Guidry, an ag economist with LSU AgCenter, shares his thoughts about the current soybean market.

Dr. Kurt Guidry:  The soybean market is really shaping up to be a tale of two contrasting stories. On the one hand, there is the very positive supply and demand situation for the 2013 crop and the corresponding 2013/14 marketing year, which is once again characterized by extremely strong demand and historically tight stock levels. On the other hand, there is the much less positive supply and demand situation for the 2014 crop and the corresponding 2014/15 marketing year that projects to experience significant increases of both domestic and global soybean supplies.

In the short term, the outlook for soybean markets looks positive as the strong pace-to-demand to this point in the 2013/14 marketing year has brought thoughts of shrinking supplies. Profitable crush margins have created some optimism in domestic soybean crush use, forcing USDA to increase its projections by more than 50 million bushels since September 2013.

However, the real explosion in soybean demand has come from exports. With the pace of export shipments still surpassing the pace needed to reach USDA projections, additional changes in USDA’s 2013/14 marketing year projections could materialize in future reports. This is particularly true if the amount of soybeans already shipped is combined with the amount of outstanding sales (Soybeans that have been committed but not yet shipped). With over six months left in the 2013/14 marketing year, total export commitments are actually higher than USDA’s projections for the entire year. While there is always some possibility that outstanding sales could be canceled, the strength experienced to this point in the marketing year may prove to be enough to shave off a few more bushels.

Just how much ending stocks may be reduced in future reports is dependent on how quickly a record South American crop can reach world markets. South American soybean production is expected to increase by nearly 10 percent over the previous year and reach record levels. Infrastructure issues created significant delays in getting soybeans to export markets last year and helped to keep U.S. exports strong. With even larger supplies this year and with similar infrastructure issues, it seems reasonable to expect that U.S. soybean exports may have some staying power again this year.

With the tight stock situation that is undoubtedly going to exist for the 2013/14 marketing year, prices over the next few months should be supported in the $11 range and could challenge the $12 level if a significant slowdown in demand is not experienced. With the potential of large increases in U.S. production in 2014, a move to the $12 level should likely be viewed as a marketing opportunity.

Given the current situation and outlook for soybeans, a reasonable projection for prices for 2014 would seem to be in the $11 to $12.50 per-bushel range. While an increase to 81 million acres would undoubtedly push supplies significantly higher, the overall strong demand base for soybeans both domestically and globally is expected to prevent a complete fallout and keep prices in the lower end of the projected range. Lower-than-expected acreage in 2014 or production issues with the 2014 crop could push prices into the upper end of the projected price range.

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