CHICAGO (Reuters) - Expectations surrounding the U.S. soybean crop keep growing. Not only is a reality check in order - in terms of whether such big yields are even possible - but the impact on domestic stocks may be of greater interest.
Analysts are expecting soybean yields to rise to 51.5 bushels per acre in the U.S. Department of Agriculture’s monthly crop production report, due on Wednesday at noon EDT.
This yield is far above the previous record of 48 bushels per acre, set last year. The 2014 crop holds second place with 47.5 bpa, and both 2009 and 2013’s bpa of 44 is a distant third place.
Lately, the market cannot seem to decide whether it is bullish or bearish on soybeans with impressive demand but even more impressive supply. But the bear may be in control in Chicago, as CBOT soybean futures are back near mid-April levels, having lost 22 percent since their June 10 high (reut.rs/2dOAueV).
For what they are worth, word-of-mouth harvest reports as well as those floating around social media seem to confirm the market’s yield position comfortably over 50 bushels per acre. Interestingly, no industry estimate topped 48.8 bushels per acre heading into the August crop production report.
Amid the record yields of the past two years, it may have been hard to imagine 50-plus bpa, especially as growing conditions were favorable in those years. But with a solid argument for enormous yields out of 2016’s harvest, the pressure on demand is mounting.
Although record yields of the previous two years imply fantastic weather during the soybean growing season, this year’s weather was even better.
The 2014 and 2015 seasons were perhaps a bit too wet at the start of the vegetative growth period, when soybeans actually prefer to be somewhat drier, similar to this year. But the rainfall in August is really what set 2016 apart from its predecessors.
August is the primary month for soybeans across the country to be setting and filling pods, and precipitation is key at this stage. Rain was plentiful just about everywhere in August 2016, while many major production states grappled with pockets of dryness in the previous two years (reut.rs/2dOAc7D).
Emily Carolan, an account manager with DuPont Pioneer, said this year’s soybean crops received stress at exactly the right times, which is how yield expectations have grown as large as they have.
“Heat and sunlight earlier in the summer helped the plants put on height and develop a good canopy,” Carolan said. “The August rains extended the typical growth period, allowing plants to put on even more pods.”
But the rains can be both a blessing and a curse. August rainfall totals across U.S. soybean production areas were the largest in at least 30 years, which was Carolan’s one hesitation about pushing this year’s soybean yields too far up.
“Too much rain – especially in warm weather – can lead to disease issues,” she said. “Disease could be a limiting factor this year, and it may not be worked in to current market estimates.”
Although there is not widespread talk of disease-related yield losses around the country, soybeans were only 44 percent harvested as of Oct. 9. Additionally, farmers may be hesitant to broadcast struggles with disease, preferring instead to show off their bin-shattering fields.
Year-on-year U.S. soybean supply is expected to increase at three times the rate of the previous year. And this is taking into account USDA’s 2016/17 estimates as of September, not including USDA’s anticipated 2 percent increase to the current crop on Oct. 12.
Domestic soybean production has increased over 10 percent since USDA’s initial outlooks in May, and as such, carryout has steadily risen as well. Industry analysts expect that 2016/17 U.S. soybean carryout will increase to 413 million bushels from September’s 365 million.
Although the point has been made that USDA has a recent tendency to largely overstate U.S. soybean carryout early on in the marketing year, a possible crop of 52 bushels per acre - or larger - had never previously been in the discussion. This puts increasing pressure on the demand structure to balance out the swelling supply.
Crushing has traditionally been the No. 1 use of soybeans in the United States, but exports grabbed that title last year and are expected to continue the trend. Record soybean exports slated for the 2016/17 marketing year would help keep supply at bay, but its feasibility can be challenged.
The United States is the world’s primary source of soybeans between now and February, when the South American supply will come online, so the size of crops in competitors Brazil and Argentina will be a major factor in the U.S. export scenario. The actual capacity of the U.S. port and river system also comes into play, and this is a bit harder to pinpoint.
Both corn and soybean sales in the new marketing year are at very respectable levels, especially compared with last year, so U.S. grain shippers already have a busy year ahead. Export inspections data implies that actual shipments since Sept. 1, the start of the 2016/17 campaign, are 18 percent ahead of last year for soybeans and corn is 179 percent ahead of last year.
Like soybeans, domestic corn supply is also piling up, so there may be some stiff competition at port between the two.
Historical monthly export data shows that during the peak soybean shipping season, October through February, the largest corn volumes have rarely coincided with the largest soybean volumes.
Although this topic admittedly warrants a separate investigation, the data may suggest that record shipments of both grains are unlikely over the next few months, meaning one may end up losing out.
But if domestic yields end up pushing even higher and/or South America churns out a big crop early next year, U.S. soybean supply could fatten up very quickly and double-digit soybean future prices could be a thing of the past.
Editing by Matthew Lewis