By David Asbridge – Market Production Analysis and Market Outlook

Thanks to cooperative weather, U.S. farmers planted corn at a near-record pace, but soybean planting continues to progress at a much slower rate. It’s not that U.S. farmers are behind in planting – rather, soybean planting is average for this time of year as opposed to the quick pace of corn planting. The average pace, however, combined with the relatively good weather so far this year, has begun to put pressure on the soybean market.

After last year’s record soybean crop, soybean ending stocks may increase by 34 percent by the end of the current crop year, but that only puts them at 185 million bushels, or 5.6 percent of use.

This is considered relatively tight as the stocks-to-use ratio is normally expected to be around 8 percent to 10 percent during “normal” times. However, the Argentines and Brazilians are completing harvest of record crops, so the world situation for soybeans is not considered tight. In fact, if U.S. soybean farmers seed their 78.1 million intended acres for 2010 and we get a trend yield of just under 43 bushels per acre, we could see a 3.31-billion-bushel soybean crop harvested in the United States this fall, just under the record 3.36 billion bushels produced in 2009. With usage expected to drop due to lower crush and exports, this could mean that U.S. stocks could build to about 360 million bushels by the end of the 2010 crop year, pushing the stocks-to-use ratio up to 11.5 percent. This would be considered a surplus and will likely put even further pressure on U.S. soybean prices.

As for the demand for the 2010 crop year, I mentioned above that total demand is expected to fall. Crush is expected to decline because the United States will face a lot more competition for soybean meal exports over the next year as the Argentines get back in the game following their record crop this year. World demand for soybean meal is expected to increase sharply, but Argentina is expected to ramp up its production, and exports, and take back some of the trade we have enjoyed over the past year. Domestic use of soybean meal is expected to increase somewhat as the U.S. livestock industry inches ahead, but this will not be enough to overcome the decline in exports. Prices for meal are also expected to drop in the United States, from about $295 per ton for the 2009 crop-year average down to about $250 for the 2010 crop.

The same is also true for soybean oil, although the trade rift with China has the Argentines under some pressure since the Chinese have vowed not to import Argentine soybean oil due to the high hexane content. I would hazard a guess, however, that allowing more Chinese blue jeans into Argentina might help that situation somewhat. Exports from the United States are expected to move down by about a third in 2010. Domestic use may grow next year due to an increase in biodiesel production, but this will offset a small decline in domestic use for food.

The increased use of soybean oil for biodiesel production, however, depends on the passage of the Biodiesel Blenders’ Credit. That credit of $1 per gallon of B100 biodiesel (100 percent biodiesel) ended at the end of the 2009 calendar year and has not yet been extended for 2010. Despite many attempts, the credit remains no longer on the books. Most analysts expect federal lawmakers to reinstate the credit soon, but no guarantees are in place to make that happen. The increased use of soybean oil for biodiesel will have a large impact on whether U.S. soybean oil stocks increase or decrease next year. That will also impact prices as we now expect the credit to be reinstated and biodiesel production to increase. If that happens, soybean oil prices will likely remain stable at about 36 cents per pound. If not, then prices could move lower and put even more pressure on soybean prices.

The next big soybean report is the June 30 acreage report. This will give us a first look at just how many acres did get planted. As mentioned above, the intentions report totaled 78.1 million acres, but the spring weather could have convinced some farmers to plant more corn and less soybeans than intended. If so, that could tighten up the balance and help keep prices from falling. Come back next month and we’ll discuss the planted acres and see what it does for the price outlook. And, as always, feel free to use the comment section below to let me know if you have any questions or comments.

posted by Expert 2:47 pm