Weather whacks soybean harvest but there is some price upside

By Steve Kell

The cold, wet fall of 2014 has rewritten the supply and demand balance sheet for the year’s soybean crop and those changes to the supply will ultimately impact prices.

Ontario’s 2014 crop was approximately 3 million acres, and while we have yet to learn the final yield figures, with an average yield of 45 bushels per acre, the provincial production for this year will be 135 million bushels, or about 3.66 million metric tonnes. With an estimated 600,000 tonnes of food grade identity preserved soybeans, it leaves a little more than 3 million tonnes of soybeans to meet the 1.1 million tonnes of domestic crusher demand, and a target of 1.5 million tonnes of exports. This would leave Ontario with 460,000 tonnes carryout or 12.5 % stocks-to-use ratio.

The late harvest, and all of the drawn out rain-related delays have had two significant impacts on Ontario’s soybean supply. First, the number of soybeans originally grown as identity preserved soybeans, which actually meet the food market quality criteria, is going to fall well below the normal ratio. Mud tagging, staining, mechanical drying, and other quality problems brought about by poor harvest conditions have downgraded a significant portion of the food grade soybeans into the crush market. This is great news for producers who were fortunate enough to be able to tuck away some high-quality soybeans, as the IP market might get tight on supply in the forward months. But the diversion of lower quality IPs into the crush soybean market has the negative impact of increasing supply in a market which was not suffering from scarcity.

Second, the bigger volume impact of the slow harvest on domestic soybeans supplies is that due to the winter closure of the Great Lakes St. Lawrence Seaway, Ontario soybean growers have a limited time to access world export markets. Typically, our market has a period of 14 weeks, (from mid-September until the end of December), within which to export about one third of our soybean crop. While there were some soybeans exported in the first half of October, the export infrastructure never reached full shipping capacity until the end of that month.

Having lost about three weeks of shipping at the front end of the soybean export season, Ontario is going to struggle in order to reach 1.5 million tonnes of crusher soybean exports this fall. The pace of loading has actually been impressive since mid-October, but the most likely estimates now put provincial soybean exports at 1.2 to 1.3 million tonnes in the fall shipping period. A lowering of exports by 200,000 tonnes (and, perhaps the addition of 100,000 tonnes of IP soybeans being shifted into the crusher soybean supply due to harvest related quality issues) and Ontario’s potential soybean ending stocks rise from 460,000 tonnes to 760,000 tonnes, or from 12.5 % to slightly more than 20 %. While bigger than expected ending stocks will not impact futures prices on the Chicago Board of Trade (CBOT), it will result in lower basis levels in this market towards the end of this crop’s marketing year.

The good news for farmers is that the issues with Ontario’s domestic supply of soybeans really only impact the basis portion of price, and even a softening of basis levels will not occur until the export season wraps up and that demand is quenched. The futures portion of soybean prices are determined by market factors in the global community and those market forces are still remarkably strong.

Continued strength on soy products, (especially soymeal), and consistently high export sales reports out of the United States, have kept CBOT soybean futures strong.

Of particular interest to price watchers, is the USDA’s reported pace on American soybean exports. In contrast to the slower pace of soybean exports out of eastern Canada, the United States is 16 % ahead of last year’s export pace as of Nov. 20, and U.S. shipping does not end when the lakes freeze over.

A solid pace of usage is key to keeping soybean stocks tight, and it is especially important to move as many northern hemisphere soybeans as possible early in the season, so that they are out of the system before the southern hemisphere harvest begins.

Despite some localized issues in the Great Lakes basin, the North American soybean market has gotten off to a great start on the 2014 crop year.

Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.