Friday’s USDA supply/demand report  received a negative initial reception from the soybean market as it lowered South American production less than expected and left the U.S. soybean carryout unchanged, however, supply concerns have quickly reemerged with some questioning why USDA did not raise projected U.S. exports for 2012-2013 despite continued strong demand.
This issue is the subject of debate in the market even with traders turning their attention toward the USDA Quarterly Grain Stocks and Prospective Plantings Reports due out March 28.
USDA is clearly anticipating a sharp drop-off in U.S. soybean sales and export shipment as a record South American crop hits the world market this spring, similar to what happened in 2010-2011. A good case can be made, though, that USDA is underestimating old-crop exports, based on strong U.S. export shipments to date, Brazilian logistical problems and stronger Chinese demand. Chinese buyers appear to have switched a few cargos of soybeans from Brazil to the U.S. since mid-February.
U.S. soybean export sales commitments have already reached 96% of USDA’s projected marketing year total of 1.345 billion bushels, while actual export shipments have reached 85% of the total.
Meanwhile, the flow of Brazilian soybeans into the world market continues to be slowed by severe congestion at Brazilian export ports, which are struggling to handle large volumes of both soybeans and corn, as well as by slow movement of soybean supplies to ports due to new tighter restrictions on work hours for Brazilian truck drivers. Brazilian dockworkers are set to stage more labor actions, also, with union leaders scheduling a 24-hour strike for March 19.
At the same time, Chinese demand has continued to rise with China expected to import 63 million metric tons (mmt) of soybeans during 2012-2013, up from 59.23 mmt in 2011-2012 and 20.4% more than the 52.34 mmt it imported in 2010-2011, according to USDA.
Any increase in U.S. old-crop soybean exports over USDA’s current projection will be minor. There simply aren’t enough soybeans available, especially with U.S. crushers continuing to compete strongly for supplies. USDA’s projected 125-million-bushel U.S. carryout is already near what is considered the "minimum pipeline supply" needed to keep the cash soybean market functioning properly. The projected 2012-2013 soybean stocks-to-use ratio is 4.1%, meaning there will be about a 15-day supply of soybeans left in the U.S. at the end of the marketing year.
Even if USDA is underestimating exports, it is doubtful export demand will be strong enough to force old-crop soybean futures sharply higher from current levels without a significant weather threat to new-crop U.S. production.
Regardless of logistical problems, the amount of Brazilians soybeans moving into the market is building with Brazil’s harvest already about 48% compete as of March 8, compared with a five-year average of 32%, according to Brazilian analyst Safras & Mercado. Brazilian farmers also forward-sold a large percentage of their 2013 production, with more than 60% of the crop estimated sold by the start of March. With Argentina’s harvest set to get underway, South American supply pressure on prices should ramp up further.
Exporter demand for U.S. old-crop soybeans should really dry up if the new U.S. crop gets off to a good start. In the near term, the tight supply situation in U.S. cash markets may continue be reflected as much in strong basis levels as much as in futures prices.
Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.