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CME: Large Soybean Harvest to Improve Feed Prices

18 August 2016

US - High protein feed cost prospects for livestock and poultry producers improved last Friday, with the USDA-NASS estimate of record large harvests for corn and soybean, write Steve Meyer and Len Steiner.

The table that follows show the consequences of these larger feed supplies on the outlook for usage and prices of soybeans and soybean meal.

It is interesting to contrast the differences in the current outlook for soybean markets now versus 90 days ago, when the crop was being planted.

South America was expecting to harvest close to 170 million metric tons of soybeans as May began, according USDA-Foreign Agriculture Service (FAS).

This estimate was adjusted down to 166.7 million tons in mid-May as rains and flooding in South America caused significant harvest losses. In ensuing months, the estimated soybean production in South America has been revised downward to 164.0 million tons.

The net 6 million ton decline in South American production equates to 220 million bushels of soybeans. The expectations for US soybean exports in May for the current crop year were 1.74 billion bushels.

The end of the crop year is only a couple of weeks away now, and soybean exports for the crop year will total close to 1.88 billion bushels, a 140 million bushel increase or about two thirds of the decline in South American production.

Similarly, expected inventories of soybeans on September 1 fell from 400 million bushels in May to the current 255 million bushel projection.

Changing the source of soybeans in global trade channels resulted in significant price volatility in soybean markets from April through June. The crop year (Sep 2015-Aug 2016) average price forecast for soybean meal last May by the USDA was $310 per ton but will end up at $325 per ton.

In the process, soybean meal prices spent considerable time over $400. The realisation of an orderly harvest of record-setting quantities in coming weeks and months should preclude a re-occurrence of such price volatility.

The USDA expects soybean meal prices to average $305-345 in the Sep 2016-Aug 2017 crop year.

Domestic soybean meal usage is assumed to increase 2 per cent, consistent with the amount of additional pork, poultry and dairy production in the coming year. This is up 1 per cent from soybean meal usage expectations for 2016/2017 that were in place last May.

The record-large USDA forecast soybean harvest of 2016 is 131 million bushels more than 2015. The additional domestic soybean meal usage would use up 40 million bushels of the increased harvest.

The USDA expects that exports in the coming crop year will exceed the 2015/2016 tally by 70 million bushels. The 70 million bushel increase on top of the 140 million bushel increase in realised exports in the wake of South American crop losses matches up with the 220 million bushel decline in South American supplies last spring.

US soybean production plus imports in the 2015/16 crop exceeded usage by 60 million bushels. The 131 million bushel increase in production along with 110 million bushels of additional disappearance (40 million bushels of domestic use plus 70 million more exports) means that soybean ending stocks a year from now will be up another 80 million bushels.

This additional inventory will be an important factor keeping soybean, and soybean product prices moving gradually lower in coming months.

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