CHICAGO (Reuters) - Although robust world soybean demand and competitive advantages have allowed the United States to surpass early-season export forecasts for four years in a row, market-watchers wonder if this is the year that will break the mold as world supply continues to hit new records.
The U.S. Department of Agriculture’s weekly soybean export figures – which include port inspections and sales – have consistently met or exceeded analyst estimates so far in the new marketing year that began Sept. 1, implying that the U.S. shipping campaign is on schedule.
But when comparing the current data against historical expectations, the 2017/18 shipping campaign has a lot to prove going forward, especially considering the forecast for a record volume.
Whether intentional or not, analyst predictions for the weekly inspections and sales reports imply a comparatively bearish outlook for U.S. soybean exports.
Summing up all the highest inspection guesses for the first 10 weeks of the current marketing year yields a total volume 2 percent smaller than the realized value. Actual sales have landed above the trade range every week so far in 2017/18 except the most recent one.
Cumulative soybean inspections through Nov. 9 are down 12 percent from last year’s levels and bookings through Nov. 2 are down 15 percent. But USDA’s forecast is for 2017/18 exports to grow 3 percent over last season’s record.
Some analysts might argue that a lag from year ago is to be expected since the 2016/17 marketing year was heavily front-loaded due to shortages in top-supplier Brazil.
But hopefully USDA would have factored that in to its 2016/17 forecast by last November, which was 200 million bushels lower than the current projection for 2017/18.
A comparison with two years ago could also bolster the case. USDA was somewhat pessimistic on exports early on in the 2015/16 season as it spent the second half of 2015 trimming the annual target. Although it did not exactly pan out, Brazil seemed on track for a bumper crop at the time, and this curbed expectations for U.S. demand.
Inspections through Nov. 9 are 11 percent greater than the same date in 2015 and current sales are larger by 10 percent. But relative to expectations, the margin should be wider.
USDA’s current full-year export target of 2.25 billion bushels is 31 percent larger than the agency’s 2015/16 forecast two Novembers ago. The current figure is also 16 percent larger than that season’s final number of 1.936 billion bushels.
However, USDA has not yet reduced its 2017/18 projection, which has grown by 100 million bushels since the initial estimate in May.
It is also worth noting that similar to two years ago, another bumper crop is expected in Brazil, which is wrapping up its planting efforts now. Analysts see output at 109.43 million tonnes, down 4 percent from year ago but much larger than any other previous harvest.
October and November are the two biggest months for U.S. soybean shipments and in recent years, close to 40 percent of the annual amount sailed during these months.
Average inspections over the last few weeks have been smaller than in the same weeks during both 2015 and 2016, which is unsettling since this should be prime time for the U.S. soy export program. (reut.rs/2zFwXfe)
However, the United States may have shipped more soybeans earlier than normal this year.
In August and September of 2016, some 7.9 million tonnes of beans left U.S. ports – two-thirds larger than the previous record for the period. This spike was attributed to the drought-clipped harvest in Brazil earlier last year.
But August-September 2017 shipments fell only 2 percent from last year’s level, and this occurred at the same time that key rival Brazil cranked out record export volumes for both months.
Looking at combined Brazil and U.S. exports for the month of September further demonstrates both how crazy the anomaly was and how unlikely its sustainability would be. The two countries, which supply the majority of the world’s soybeans, shipped a volume 47 percent larger than the previous high for the month set in 2015. (reut.rs/2zECOkT)
China, the world’s primary soy consumer, had incentive to start stockpiling soybeans a couple months ago. Domestic crush margins were consistently positive for the first time in nearly four months, and rising further, and the global abundance and relatively low prices for the oilseed allowed Chinese buyers to cash in on the deal.
(For a graphic on 'USA+Brazil September soybean exports, 2008-2017' click reut.rs/2zECOkT)
Although skepticism over lofty export goals is completely valid, soybean demand doubters have simply not emerged as winners within the last two years, regardless of the underlying reason.
The massive September exports might not be a signpost of a permanent demand boost, but the 25 percent year-on-year rise in actual shipments for the month was much larger than the 12 percent implied from inspections.
This is a reminder that weekly inspections – and sales for that matter – may not always serve as an accurate proxy for actual exports.
U.S. demand found some unexpected support from Brazil early in 2017, which went against market thinking given that the South American country had just harvested a monster soybean crop.
Strength in Brazil’s currency can limit grower selling there as soybeans are priced in dollars. Domestic farmers were particularly stingy with their sales earlier this year, especially in the low-price environment.
There is always the possibility of adverse weather during the South American growing season, which is still in its infancy. Brazil’s planting was 57 percent complete as of last Thursday and Argentina typically has about a third of its soybeans planted by this date.
And although the trend cannot be relied on forever, USDA initially underestimated Chinese soybean imports by an average of 7 percent over the previous three seasons.
(The opinions expressed here are those of the author, a market analyst for Reuters)
Editing by Matthew Lewis