By Alan Brugler
DTN Contributing Analyst
USDA on Friday cut projected U.S. soy exports another 50 million bushels, to 1.675 billion bushels. With revisions to the old-crop balance sheet, USDA is now expecting U.S. shipments to be 163 million bushels below last year. Why do they think U.S. shipments will be that small, and what could change the forecast?
Argument No. 1 is the lack of U.S. export sales on the books. As of the Thursday, Oct. 8, USDA Export Sales report, U.S. soybean export commitments were down 7.739 million metric tons (284 million bushels) from a year ago at this time. Commitments are the sum of exports since Sept. 1 and contracted but not shipped business. Commitments prior to the revision were 47% of the full-year USDA forecast. They would typically be 58% by now (five-year average). When the sales activity is that slow, USDA often lowers the full-year projection. They did make a notable exception in corn this month by leaving it unchanged.
A major reason for the lag in sales is competition out of South America. USDA hiked projected Brazilian production to 100.0 mmt (3.674 billion bushels) Friday morning from 96.2 mmt last year. Due to the weakness of the Brazilian real, farmers there are seeing much higher prices than last year in local currency terms. That is not the case in the United States, but is clearly an incentive to plant more beans in Brazil. For the full year, USDA sees Brazilian exports at 56.45 mmt, up 1.95 mmt from the September estimate and versus 51.11 mmt last year.
Brazil has also been aggressively shipping beans, as shown by the graphic accompanying this column. Brazilian shipments for calendar 2015 are over 4.9 mmt above the same period in 2014. These shipments would be from the 2014/15 crop, which was 96.2 mmt.
Let's broaden the discussion to all major exporters outside the United States (i.e. Argentina, Brazil, Paraguay, Uruguay, or SAM for South America). That group is seen shipping 74.03 mmt in the 2015/16 marketing year versus 68.32 MMT last year. The U.S. is seen shipping 45.59 mmt versus 50.17 mmt last year. Let me do the math for you. That is a 5.71 mmt gain for SAM, and a 4.58 mmt loss for the U.S. That is a loss of market share for the U.S. to SAM-origin soybeans. U.S. sales to China mirror that market share issue, with China commitments as of Oct. 1 at 8.04 mmt (295 million bushels) below versus last year at this time.
This all looks pretty bleak, but there is hope. First of all, while those Brazilian shipments year to date are up more than 4.9 mmt, we should point out that U.S. shipments are also up 1.2 mmt for the same period. We used Export Inspections data for that figure, as Census data is only available through August. You can therefore assume that the size of the overall export pie is growing.
A big problem for the World Agricultural Outlook Board as it prepared this set of numbers is the lack of growth seen in world soybean export trade for the 2015-16 marketing year. World exports are seen at 126.77 mmt for 2015-16 versus 126.05 for old crop. There is major potential for error in this assumption, as USDA has been routinely too low on world soybean consumption at the beginning of the marketing year. The lowest prices since 2008 would seem to support more growth in consumption than one-half of 1 percent. China imports of 79 mmt are seen up versus 77 mmt last year, but the rest of world number is down. The Chinese number COULD also be conservative, but the arguments for a slowing of the Chinese economy are well known.
It could be argued, with U.S. sales to China lagging by 295 million bushels, that the 163-million-bushel year-to-year drop is actually not a big enough reduction. However, with the 13 mmt frame contract signed in Des Moines, the market knows additional Chinese business is coming. Given the conservative expectations for annual world growth, the USDA forecast seems about right for the known facts.
Alan Brugler can be contacted at alanb@bruglermktg.com
(SK)
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