The February WASDE report will prove to be one of the most anticipated reports in history. Along with updates on US grain stocks and 2018 crop production, the trade is anxious to see the USDA’s assessment of S American soy crop production and world trade. The December WASDE had estimated record large S American soybean production of 193 MMTs. But the outlook has changed since the last USDA estimates were compiled in early December. Based on heat/dryness through Dec/January, ARC has lowered estimate for the Brazilian soybean crop to 116 MMTs (USDA 122 MMTs). Argentine soybean production is seen recovering from last year’s drought; though, the extremely wet spring has likely trimmed yield potential. ARC estimates an Argentine crop of 53 MMTs versus the USDA’s 55 MMT estimate. Paraguay is expected to produce a crop near 9 MMTs, with other S America countries to harvest another 5 MMTs. Total South American production of 183 MMTs is 10 MMTs under the Dec WASDE estimate, but it is an 11 MMT increase over last year, the 2nd largest on record.
With a smaller S American crop size, exportable S American supplies will logically tighten. Assuming our crop estimates are correct, ARC forecasts exportable S American soybean supplies (total supply – domestic crush) at 156 MMTs – 10 MMTs under the Dec WASDE, but 3 MMTs more than a year ago. The chart plots the relationship between exportable S American soybean supplies, and actual exports. Assuming exportable supplies of 156 MMTs, AgResource estimates total S American soybean exports of 85-87 MMTs (Oct-Sep marketing year), versus 86 MMTs in 2017/18 and the Dec WASDE estimate of 94 MMTs for 2018/19.
However, S American exports and global trade estimates will remain a constantly shifting puzzle until a US/China trade deal is confirmed. The Feb WASDE will assume that China trade tariffs will stay in place to year end, but WASDE analysts will now need to adjust trade estimates to account for the 10 MMT’s of US soybeans that China has bought in the last 2 months.
World cash markets are not reflecting either a world soybean shortage or fears that the US/China trade war will continue into the summer. US and Brazilian soybeans on a fob basis have been trading near parity for the last several weeks at $.35-.40 over the CBOT, while Brazilian offers for Mar-May are quoted 18-30 cents over the US and are similar to where the spot market was a year ago – before the US/China trade conflict escalated.
Current freight quotes indicate that the landed costs of Brazilian soybeans into China are about $.35-.40/bu cheaper than from the Gulf. Ultimately, we see the world soybean market as well supplied. S American crops no longer hold the potential that the USDA saw back in December, but the total S American crop will still be the one of the largest on record.
US soybean stocks remain large, and the world will stay awash in soy, with Chinese demand slowing. This keeps our price outlook for soybeans bearish on rallies with seaonal lows due next summer.