Soybean Outlook

Cory WaltersUniversity of Kentucky

Extension Section Crops OutlookAAEA, Pittsburgh July 24-26, 2011

19701972197419761978198019821984198619881990199219941996199820002002200420062008

0.00 2.50 5.00 7.50

10.00 12.50 15.00 17.50 20.00 22.50 25.00 27.50 30.00

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14.00

U.S. Soybean Stocks/Use and Average Farm Price 1970-2011

Stocks/Use

Price

Year

Stoc

ks/U

se (P

erce

nt)

Dol

lars

Per

Bus

hel

Interesting chart, stocks-to-use is low but price has sky rocketed, why? We have seen stocks-to-use at similar values , for example in 2003, but price is now 77% higher.

Should we expect to maintain the current price level in the foreseeable future?

– Need to answer a few questions to get towards an answer

• Have there been production shortfalls?• Increased demand?

– From who?» Importing Countries?» Domestic demand?

• Is this year’s crop in jeopardy? • Is it speculators?

1971

1973

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2007

2009

2011

0

500

1,000

1,500

2,000

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3,000

3,500

U.S. Soybean Production 1971/72-2010/11

Year

Mill

ions

of B

ushe

ls

We had record and near record production in the past three years

World Soybean Production by U.S. and Major Exporters

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

200920102011Pe

rcen

t

World Production

– Production shortfalls (both domestic and world) do not match current price situation or past four month average price

World Production, in Million Metric Tons

Year Production

2011 261.45

2010 263.69

2009 260.84

Source: WASDE (July, 2011)

1971

1973

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2011

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U.S. Soybean Supply and Disappearance 1971/72-2010/11

Crush

Exports

Use

Mill

ions

of B

ushe

ls

• Use has been flat over the past 3 years

Has there been increased demand from Foreign Countries?

China EU-270

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Imports by Top Two Importing Countries (Ok, one Economic Union)

200920102011

Perc

ent

Percent change in Chinese Consumption

Chinese Consumption of Mutton, Beef, Pork, and Poultry

Rural Urban

2004 to 2008 0.30% -1.34%

1999 to 2003 3.24% 7.39%

• No evidence of faster demand growth in China. Maybe since 2008 there has be a significant positive increase in consumption?

U.S. Consumption

– No evidence of increased domestic use in the past few years

19901992

19941996

19982000

20022004

20062008

20100

500

1,000

1,500

2,000

2,500

Mill

ion

Bush

els

2011 Crop Conditions

1) Crop condition is inline with recent year averages2) Crop progress is slightly behind normal

10/16/2007

1/15/2008

4/15/2008

7/15/2008

10/14/2008

1/13/2009

4/14/2009

7/14/2009

10/13/2009

1/26/2010

4/27/2010

7/27/2010

10/26/2010

1/25/2011

4/26/2011

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

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400,000

Soybean Interest by Commodity Index Traders and Speculators

NON- COMMER-CIALINDEX TRADERS

Num

ber o

f Net

Long

Con

trac

ts

Since last fall speculators have strongly been net long. This should push prices higher and consequently increase stocks. Have stocks increased? – Yes, from late spring to summer

September

October

November

December

January

February

March AprilMay

JuneJuly

0

50

100

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300

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Soybean Ending Stocks by WASDE ReportM

illio

ns o

f Bus

hels

USDA SUPPLY/DEMAND BALANCE SHEET FOR SOYBEANS  

  2009/10 2010/11Est.2011/12

Projections %D  Millions of AcresAcres Planted 77.5 77.4 75.2 -2.8%Acres Harvested 76.4 76.6 74.3 -3.0% Bu./Harvested Acre 44.0 43.5 43.4 -0.2%  Millions of BushelsBeginning Stocks 138 151 200 32.5%Production 3,359 3,329 3,225 -3.1% Total Supply 3,512 3,495 3,440 -1.6%Use:         Crushing 1,752 1,650 1,655 0.3% Exports 1,498 1,520 1,495 -1.6% Seed & Residuals 111 125 115 -8.0% Total Use 3,361 3,295 3,264 -0.9%         Ending Stocks 151 200 175 -12.5%Ending Stocks, % of Use 4.5 6.1 5.4 -11.7%U.S. Season Average Farm Price, $/Bu

$9.95 $11.35 $13.00 14.5%       

Source: USDA, WASDE        

– In times of short supply prices are more sensitive to changes in quantities:

p

q

Market demand

Same shock

Different priceeffects

Should we expect to maintain the current price level in the foreseeable future?

– Need to answer a few questions to get to an answer• Have there been production shortfalls? DOESN’T

APPEAR SO – world supply is above 2009 level • Increased demand? UNCLEAR

– From who?» Importing Countries? MAYBE- increase in

Chinese imports through 2011 but consumption, through 2008, was not expanding as quickly

» Domestic demand? NO – has leveled off

Is this year’s crop in jeopardy? NOT YET- good to excellent rating is in line with last couple of years – Still have lots of weather uncertainty remaining in the growing season

• Is it speculators? SLIGHTLY – stocks increased 50 million bushels between April and June. But they have now removed their net long position

– In times of short stocks, prices are more sensitive to changes in quantity – thus could experience a spike

– Maybe other crops have influenced soybean price through acreage – i.e., the corn market

• Currently takes almost 34 times the Kentucky corn crop to meet ethanol demand for one year

– No evidence of a lack of production– No clear evidence of an increase in demand from China– 2011 weather seems to be keeping crop progress and

condition within a “normal” range– Low stocks-to-use implies strong price changes– Soybean price keeping up with corn price can lead to

price spikes

– Have we really encountered at true shortage in world food markets? I don’t think so.