Soybean pricing and marketing opportunities are on everyone’s mind as we work to get this year’s crop put away. What’s been really interesting this fall is how radically different the northern and southern hemisphere soybean crops are turning out to be and how those situations could pull prices in opposite directions.
On September 12, the USDA report captured two distinctly different scenarios for soybeans, and released them in the same publication. They lowered yield estimates by one bushel per acre, and lowered the number of harvested acres by 500,000, resulting in the smallest ending stocks since 2012 – 2013, and a stocks-to-use ratio of 4.5%.
4.5% of a year is about 16 days, so without spending too much time on the line-by-line details in the USDA Report, suffice to say that on September 1, 2023, the USDA expects that North America will only have a 16-day supply of soybeans left, which is a very concerning number, and prices will need to rise enough to slow demand and ration that tight supply.
In the very same USDA Report, analysts estimated record soybean acres in South America, with the trend line increase in forecasted yields. The net result of those two factors produced an extremely big world soybean carryout, with a stocks-to-use ration of 26.5%, which is roughly 96 days of supply in carry-over stocks.
The paradox between the US soybean market, and the global supply and demand picture creates a really interesting situation for us as Ontario soybean growers. With northern hemisphere stocks in limited supply, there’s a strong inclination to hoard soybeans and see how high prices could rally, but if March and April could be the start of the largest southern hemisphere bean harvest in history, it might be really foolish to hang on to too much for too long.
Ultimately, at this point in the year there is not very much that can impact the 2022 North American soybean crop. Despite the fact that the USDA might make some small adjustments to its final yield or production figures at some point down the road, the 2022 soybean crop is what it is, and the market has already figured that fact into the current price.
The big variable is South America’s soybean crop, (the one that is being planted right now). It represents the biggest portion of the world’s total supply, even a small variation in production potential could have significant consequences on price. From this point forward the biggest variable driving North American soybean prices will be South American growing conditions.
One fact we can count on is that South America will plant more soybeans this fall than ever before. Current estimates have Brazilian farmers planting a record 105-million acres of soybeans. That’s up 4-million acres from last year, which was also a record at the time. It’s both logical and believable that with record high global soybean values over the past couple of years that growers are figuring out how to slide a few more acres of soybeans into their crop rotations.
The huge unknown is yield potential. Despite the record soybean acres in South America last year, production was limited due to drought, and with another La Nina sea surface temperature situation looming in the Pacific Ocean, there is legitimate potential for Brazil and Argentina to have drought develop over the growing season in some important agricultural regions. Part of the reason why the USDA’s estimates last month show the world having 96 days worth of soybean supply left over at the end of the crop year is because they’re assuming that Southern Hemisphere countries like Brazil are going to achieve trend line yield increases with this year’s crop. They’re projecting roughly 56 bu/ac average yield in Brazil, when last year, (due to drought), the country only averaged 45 bu/ac.
If you are an optimist about South America’s potential for drought over this coming growing season, you’ll be encouraged to know that there is a 91% chance that the current La Nina event will continue through November and December. The La Nina ocean temperature phenomenon is what caused the last two years of droughts in South America. They could still produce good crops on less than normal rainfall if the rains come at the right times.
The bottom line is this: Watch the yield potential of the South American crop. Our prices have done well in recent months because the slightly small North American crop is the world’s only source of supply until next spring. But if big acres get sown in South America and get timely rains early in the growing season, the world’s supply worries will weaken and price will fall as fears ease.
If it’s dry in South America sell nothing. If it rains in South America sell two crops.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
