FORT COLLINS, Colo. (Reuters) - (The opinions expressed here are those of the author, a market analyst for Reuters.)
Brazil’s nine-month string of record soybean exports has had many market participants wondering how inventory had not yet dried up in the world’s top supplier. Sky-high supply forecasts for Argentina have also been mysterious, especially following last year’s drought-stricken soybean harvest.
The U.S. Department of Agriculture apparently had the same questions, and the only logical answer the agency could find was that its previous forecasts must be incorrect. This prompted USDA to make historical revisions to both countries’ soybean ledgers in its latest monthly update that was issued on Friday.
Brazil is known for keeping very minimal stocks of soybeans, either crushing or exporting the entirety of its crop each year. Farmers in Argentina, the leading exporter of soy products, have been prone to stockpile in recent years. But USDA’s adjustments sharply cut Argentine stocks and gave a boost to Brazil’s.
This caused USDA’s peg of 2018-19 world soybean ending stocks to fall 6 million tonnes below the pre-report market estimate of 112.7 million on Friday.
Although USDA now sees tighter global soybean supply than previously, its stock projections for Argentina and Brazil are still notably different from forecasts held by official agencies for those countries.
In last week’s update, USDA went back and revised nearly 20 years of data on Brazil’s soybean stocks and 10 years’ worth for Argentina, meaning that the figures for the current year are now much different than those from December.
The changes were made by adjusting the residual category, which includes feed, seed, and waste consumption, lower for Brazil and higher for Argentina.
In Argentina, high inflation and government policies, including export taxes, caused farmers there to hold their soybeans rather than sell them, leading to larger stockpiles. However, USDA’s supply and demand figures had Argentine soybean stocks-to-use pushing 40 percent in recent years, and the agency felt that was unreasonably high.
Brazil’s record soybean exports in 2017-18 made it clear that supplies were likely more plentiful than previously thought.
Stories of undocumented trade dating back several years in both countries also triggered the revision. USDA pointed out that while the changes were significant, the year-on-year changes that the new balances sheets implied were generally in line with the old ones.
Before diving in to USDA’s stock changes, it is important to understand the forecasts.
Most market participants are familiar with page 28 of the agency’s monthly world agricultural supply and demand estimates (WASDE), which shows the global soybean balance sheet for the current and previous two marketing years.
But as mentioned in the page 28 footnotes, USDA shifts Argentina and Brazil to an October-September year, which does not reflect natural ending points for the marketing year given that the crops are grown on the opposite side of the calendar to those in the Northern Hemisphere.
USDA’s Foreign Agriculture Service publishes a monthly oilseeds circular report at the same time as WASDE that contains soybean supply and demand estimates for South America in local marketing-year terms. For Brazil, that is February-January, and for Argentina it is April-March.
The global balance sheet on page 28 makes South American soybean ending stocks appear way larger than they are at the end of the respective cycles, which is why the local marketing year figures are much more accurate measures of supply in the individual countries.
By page 28, the latest revisions dropped global beginning stocks for 2018-19 by 3 million tonnes from December’s forecast to 98.1 million. But at the local level, Brazil’s and Argentina’s combined stocks dropped by 8 million tonnes to begin 2018-19, driven entirely by Argentina.
The American and Argentinian agencies have long held different ideas for Argentina’s soybean inventory. USDA’s latest changes bring the numbers closer together, but they remain significantly different.
Both USDA and Argentina’s Ministry of Agriculture define the country’s soybean marketing year in the same way. For example, the 2018-19 marketing year is considered to run from April 1, 2019, to March 31, 2020.
In February 2016, the Argentine ministry appeared to have overhauled historical soybean stocks, nearly halving inventory for the recent years, though the reasoning was not clear. USDA did not follow suit at that time and the discrepancy between the two agencies’ stock numbers grew, oftentimes exceeding 10 million tonnes.
USDA nearly halved its recent stock numbers for local marketing years in the revision, but the figures still stand anywhere from 30 percent larger to nearly double the ministry’s target for the most recent marketing years. (tmsnrt.rs/2BxSQwC)
USDA in December pegged Argentina’s 2017-18 ending stocks for the local marketing year at 16.85 million tonnes, though the prediction dropped to 8.4 million tonnes this month. That compares with the ministry’s January estimate of 4.37 million.
Last year, Argentina’s ministry first published its full soybean supply and demand projections for 2017-18 in April, so it is likely to be at least another two months before the projected 2018-19 stocks are revealed.
By comparison, the United States, the second-largest soybean supplier, is projected by USDA to have 24.8 million tonnes at the end of its 2018-19 marketing year on Sept. 1. That compares with 11.9 million in the previous year. (tmsnrt.rs/2E5RR8C)
Brazil’s official statistics body, Conab, made mild revisions to ending stocks on Tuesday, trimming 2018-19 to 0.9 million tonnes from 1 million last month. This also accompanied a slash in the soybean crop to 115.3 million tonnes from January’s 118.8 million.
However, USDA believes Brazil has a little more supply to work with, adjusting 2018-19 local ending stocks to 3.35 million tonnes from 1.675 million forecast in December. That would be up from 1.15 million tonnes in 2017-18, which according to USDA’s dataset was the smallest carryout since at least 2005-06.
USDA’s revision has sent local ending stocks in the recent marketing years up by more than 250 percent. The U.S. agency now holds heavier historical supply views than Conab, although the two datasets generally matched more closely before the revision.
Conab defines a January-December marketing year for Brazil’s soybeans, while USDA considers the 2018-19 marketing year, for example, to begin on Feb. 1, 2019, and end on Jan. 31, 2020. This may partially explain some of the discrepancies in estimates.
Editing by Matthew Lewis