Soybean Outlook
Southern Region Agricultural Outlook Conference
September 29 – October 1, 2003
Atlanta, GA
Delton C. Gerloff
University of Tennessee
Increased exports, lower stocks, and higher volatility have defined the 2003 soybean
market. With the addition of disappointing 2003 yields, pre harvest market prices have
risen to levels not seen in several years. The November futures price closed above $6.50
September 22, as more positive demand news and more negative yield projections were
released. How far will this bull market go? There are two very different scenarios for the
2003/2004 outlook – one from the domestic side and one from the foreign side.
Domestic
U.S. ending stocks dropped to an estimated 140 million bushels at the end of the 2002
marketing year, compared to 365 million bushels in 1998. While production dropped
moderately in 2002, an expanded crush and export market have also helped to reduce
ending stocks. Beginning the 2003/2004 marketing year with relatively low stocks puts
even more emphasis on the 2003 crop still in the field. With late season weather
problems, yield projections for the 2003 crop have dropped over 3 bushels per acre since
August, and October’s crop report may drop yields further.
The stage seems set, therefore, for support at these higher prices and even more volatile
prices in the upcoming year. Table 1 shows the latest (September) USDA projections for
1
the 2003/2004 marketing year. However, if the mid to late September prices hold, it
appears the USDA will have to increase price estimates. Even in areas of weak bases,
prices are currently at or above the high end of the projected price range.
From a domestic market standpoint, supplies appear tight enough to support these higher
prices. October’s USDA report could help clear up the yield question, but it may be even
later until verifiable harvest yield data are available. In the mean time, the latest USDA
report indicates continued high volatility and lower stock levels.
How has USDA fared with its September report in recent years? Table 2 illustrates the
changes in the September report compared to the report the following September for the
same crop year. For example, in 1995, USDA’s September soybean production projection
for the 1995 harvested crop dropped by 133 million bushels by the following September,
when more information on the 1995 crop was known. The ending stock projection
coming out of the 1995 marketing year was dropped 160 million bushels. For the period
from 1995 to 2002, it is interesting to note that ending stock projections were over
estimated each year, from a high of 195 million bushels in 1999 to 20 million bushels in
2002. While there are various reasons why ending stock projections would drop in any
given year, the September report does appear to over estimate the ultimate ending stock
level.
Do Table 2’s results mean that the 135 million bushel carryover stock estimate for
2003/2004 will ultimately decline? No – but market traders have the same information
and it likely adds to the uncertainty and volatility.
2
Table 1. USDA September Soybean Projections
Beginning Stocks
Production
Imports
Total Supply
Low Production/High Use
Projected Production/Use
High Production/Low Use
140
2523
4
2667
140
2643
4
2787
140
2763
4
2907
2572
95
$6.15
1555
940
156
2652
135
$5.70
2732
175
$5.25
Crush
Exports
Seed, Feed
Total Use
Ending Stocks
Projected Price
Source: USDA
Table 2. Differences in USDA’s September U.S. Projections Compared to the Following
September.
(Million bu)
Production
Crush
Exports
Ending
Stocks
Price ($/bu)
1995
1996
1997
1998
1999
2000
2001
2002
mean
max
min
-133
-30
40
-160
112
80
65
-45
-19
100
-75
-85
-152
-35
-55
-120
-135
-55
85
-195
-130
5
0
-125
57
40
75
-60
74
-60
190
-20
-41
6
41
-101
112
100
190
-20
-152
-60
-75
-195
0.76
-0.12
0.30
0.00
-0.15
-0.20
-0.55
-0.10
-0.01
0.76
-0.55
Source: USDA
Foreign
As U.S. stock levels have slowly dropped over the past 5 years, foreign stocks have been
building. Most of the added stock levels have come from South America, more
specifically from Argentina and Brazil. For example, Argentina and Brazil produced 1.4
billion bushels of soybeans in 1997 and had combined carryover stocks of 250 million
bushels. In 2004 it is projected that Argentina and Brazil will produce 3.4 billion bushels
of soybeans and carryover 901 million bushels (WAOB).
3
Since 1998, total foreign (non-U.S.) stocks have risen from 626 million bushels to a
projected 1.14 billion bushels for 2004 (WAOB). The World Agricultural Supply and
Demand Estimates (WASDE) from the World Agricultural Outlook Board (WAOB) have
had a difficult time keeping up with the expanded production capacity of South America.
In Table 3 differences in WAOB’s projections in September each year are compared to
the following September’s estimates for the same crop year. In 1997, for example, the
following year’s estimate of foreign soybean production was increased from the
September pre harvest projections by 353 million bushels. That same year, ending stocks
were increased 111 million bushels from the September projection.
Table 3 shows that since 1997, foreign production and ending stocks have been
significantly underestimated each year. And of that underestimation, from 76 to 100
percent has been from Argentina and Brazil since 1997 (WAOB). For 2004, WAOB
projects a 5.6% increase in soybean production from Argentina and Brazil. From history,
it is likely that the increase in production from Argentina and Brazil will be significantly
larger than 5.6%.
Table 3. Differences in WAOB’s September Foreign Soybean Projections Compared to
the Following September.
(Million bu)
Production
Crush
Exports
Ending
Stocks
1995
-56
37
-34
13
1996
-73
77
97
-114
1997
353
97
132
111
1998
211
109
135
66
1999
185
213
100
180
Source: WAOB
4
2000
333
137
310
238
2001
248
171
-59
222
2002
329
196
-77
384
mean
191
130
75
138
max
353
213
310
384
min
-73
37
-77
-114
Market Paradox
There appears to be a paradox in this year’s soybean market. Greater global supplies from
increased production in South America are in contrast with U.S. smaller stocks and
significantly higher prices. The following are possible reasons for the apparent paradox:
1) Timing: U.S. stocks have fallen over the past 3 years going into this fall. Late
season soybean yield stress increased the uncertainty in U.S. production. Brazil
and Argentina are now entering their planting season. Even though early
projections call for another increase in soybean production in South America, it is
still too early to estimate their 2004 crop accurately.
2) China: China has been a very active buyer since 1998. Table 4 shows that China
became the world’s leading soybean importer in 2002, surpassing Eastern Europe
(EU-15). The U.S. has benefited from China’s increased imports, and continues to
have strong sales to that country. Again, with lower stocks, higher Chinese
exports add more uncertainty to our lower stocks situation.
Table 4. Major Soybean Importers, 1995-2003
EU-15
Japan
China
World
1995
1996
1997
1998
1999
2000
2001
Estimated
2002
523
175
29
1177
562
185
83
1337
598
179
108
1439
615
177
141
1477
575
180
371
1749
694
175
486
2016
672
184
381
1995
647
189
716
2340
Source: WAOB
5
Projected
2003
683
189
697
2387
3) U.S. Dollar: A weaker U.S. dollar in 2003 has made our products more affordable
to prospective importers.
Summary/Conclusions
For U.S. prices to continue at their current level, it appears that current U.S. yield
projections must be at or below the 36.4 bushels/acre projection made in September. In
light of ever-increasing production from South America, exports must continue strong,
with China an important component of the U.S. export market. Last, a continued weaker
dollar relative to other foreign currencies will help support U.S. soybean prices.
From a near term price supporting position, lower U.S. yields and continued Chinese
import activity appear likely.
From a price depressing position, higher South American soybean production appears
likely. Unless weather or disease drops average yields significantly in 2004, South
American production should increase at least 5.6% (WAOB’s projection). From recent
history, that increase could be much higher.
U.S. soybean farmers should be aware that a stronger dollar in combination with larger S.
American production could put U.S. soybean prices in danger of falling significantly.
Contracting at current prices and buying call options should be considered as tools to
limit price risk this fall. If farmers wish to store beans this fall, buying March or May
2004 put options should be considered as a way to limit price risk.
6
References
World Agricultural Outlook Board (WAOB), World Agricultural Supply and Demand
Estimates, monthly data, 1995-2003.
7