November 29, 2021

Smaller soybean crop estimate sparks market

MINNEAPOLIS — A smaller than expected soybean crop forecast in the U.S. Department of Agriculture’s crop production report Nov. 9 pumped some fresh air into the commodity markets.

Brian Basting, Advance Trading research analyst, commented on this and other findings in the USDA’s crop production and supply and demand estimates reports in a teleconference hosted by the Minneapolis Grain Exchange.

What were the main takeaways in the soybean reports?

USDA reduced the size of the U.S. soybean crop. That was a surprise and there was no one in the trade, based on the trade estimates that we looked at, that were expecting a smaller soybean crop.

The soybean crop came in at 4.425 billion bushels versus 4.448 billion last month. We saw a reduction in yield in the eastern Corn Belt relative to last month and also in the southwest where we saw a reduction in soybean yield relative to October. Those are surprises compared to what the trade was expecting.

USDA reduced the soybean export forecast by 40 million bushels. What impact did that have on the balance sheet when combined with production?

That 40 million bushels is linked to a smaller import forecast for China. China imports were reduced 101 million tons in 2021-2022 to 100 million tons. That would be fractionally higher than last year’s 99.8 million tons and would still be a record, but China is a big wild card moving forward. Will they import even that many bushels of soybeans?

USDA did take a conservative stance on U.S. soybean exports, reducing that forecast by 40 million bushels. The net with the smaller crop and the reduction in the export forecast, we did see a modest increase in the carryout from 320 million bushels in October to 340 million bushels in November. However, the average trade guess was 362 million bushels carryout. There was initially a sharply higher move in the market when the report came out with the smaller than expected crop compared to October.

Why did USDA forecast Brazil’s soybean production at a record 144 million tons?

For some perspective, the U.S. in the 2021 soybean crop produced about 120 million tons. So, by far now if this crop is realized, Brazil would be the largest soybean producer in the world at 144 million tons. That crop is off to a very good start in comparison to last year when it was quite dry. This year they’ve had more moisture and the crop was planted earlier which means the crop could be harvested earlier in 2022 and could narrow the U.S. export window as we move into early 2022.

The U.S. is aggressively shipping soybean exports today, nearly 100 million bushels in the latest week. However, that window could close earlier than usual if Brazil harvests a record crop and because it was planted earlier, too, it could reach the world pipeline earlier.

The market considered the corn production and supply and demand estimates reports to lean neutral, but were there some adjustments by USDA?

The corn crop increased from last month, going up from 15.019 billion bushels last month to 15.062 billion this month — 43 million bushels higher — due to a one-half bushel per acre increase in the U.S. yield average. There was no change in the harvested acres. Any changes in acreage will be made in January.

The only change of note on the corn use side was an increase in ethanol. We’re seeing exceptional ethanol margins at the moment and USDA changed its forecast of corn used to produce ethanol by 50 million bushels this month to 5.25 billion bushels. By perspective, last year we were only at 5.028 billion bushels. So, there’s currently 225 million bushels more for ethanol being forecast by the USDA for 2021-2022.

As a result, corn carryout for 2021-2022 is 1.493 billion bushels. The average trade guess was 1.48 billion bushels carryout, so it was a little above the average guess, but a little below the 1.5 billion in October.

We’ll now focus intensely on the pace of exports from the U.S., including China, as well as crop development in Argentina, and as we move into 2022 how that Brazil double-crop safrinha corn starts.

You noted the surprise on the soybean production side with lower production, but they didn’t make any real changes in demand. So, what sparked the market?

I think the market was really dialed into that bigger crop and bigger carryout. There were some carryout estimates surfacing for U.S. soybeans of over 400 million bushels. Now, 340 million is still an ample carryout. They did dial back the export forecast 40 million bushels from last month down to 2.05 billion bushels. That’s down 215 million bushels from last year.

The message I’d share with soybean producers is that the carryout number is working higher compared to what it was last year. At some point here 2020-2021 there were carryout estimates of 100 million bushels. That number came in way above expectations back in September of 256 million bushels and now we’re penciling in 340 million bushels.

The soybean market is really going to focus intensely now on South America and with the fine start that Brazil is off to I think the bigger picture now on soybeans is the crush is being slowed down in China. China is still importing soybeans, but there are some indications that maybe the demand isn’t going to be quite as strong as folks had forecast earlier from China.

Those things are offsetting that smaller than expected soybean crop. So, I just remind folks, soybean producers especially, that this carryout is forecast to increase.

Right now we’re still looking at an increase in soybean acreage forecast for 2022. I know a lot can change over the next six months between the time when growers hit the field, but I think the soybean market feels heaviest of the three major crops of soybeans, corn and wheat at the moment.

Tom Doran

Tom Doran

Field Editor