The soya complex may be rallying on the Chicago Board of Trade, but the outlook for US supply retains its bearish feel, despite significant losses to Argentina's soyabean crop amid parched conditions. Last month, the US Department of Agriculture cut domestic soyabean exports to 2.1 billion bushels, some 3 percent smaller than last year's record. But this number might need to come down further as recent shipments have been unremarkable.
In the meantime, US soyabean crush is going strong with hefty margins, but it is unlikely to outweigh a possible downward revision in exports. A significant drought in Argentina, the No 1 supplier of soyabean products, has catapulted CBOT futures. On Monday, CBOT soyabean futures for May delivery hit lifetime highs and May soyabean meal did the same on Tuesday. The Argentine drought has sent commodity funds on a major buying spree in the futures and options arena in recent weeks, especially when it comes to soyabeans and meal.
But there is still an elephant or two in the room. For one, industry estimates of the soyabean crop in lead exporter Brazil have started edging past last year's record of 114.1 million tonnes. And back in the United States, supplies are plentiful. USDA predicts that 530 million bushels of soyabeans will be left over when the current marketing year ends in August. If realized, it would be an 11-year high and 75 percent larger than the previous year.
But despite Argentina's troubles, recent demand for US soyabeans has not yet shown any signs of significant strengthening, which places year-end supply in danger of rising further. According to the National Oilseed Processors Association (NOPA), its members have crushed a new record volume of soyabeans during the first five months of 2017-18, some 2 percent more than a year ago. Crushing soyabeans certainly appears profitable. On Tuesday, nearby CBOT crush margins reached into the upper $1.60-a-bushel range, substantially higher than usual for the time of year. This was driven by a surge in soyabean meal and suggests that processors should be crushing pretty close to capacity.
USDA predicts that domestic crush will rise to a new record 1.95 billion bushels during this marketing year. But this estimate is likely already near maximum, and any further upside may have a lot of trouble offsetting potential cuts in exports. In order to achieve an annual crush of 2 billion bushels - assuming it is physically possible - monthly volumes would have to break records by an average of 3 percent from February through August.
But the recent totals have not been impressive to that degree. So far this marketing year, the largest margin over a month's previous highest crush volume came in November at 1.5 percent. Even if similarly modest records could be set in the final seven months of 2017-18, annual crush probably cannot push much past 1.96 billion to 1.98 billion bushels.
That means that all of the efforts from US soyabean processors to increase domestic soyabean use can be wiped away with a not-so-inconceivable 30 million-bushel reduction to exports, at least judging by USDA's current balance sheet. In the week ended February 22, just 761,961 tonnes of soyabeans were inspected for export at US ports, which is the smallest full-week volume yet this marketing year. Through the same date, annual soya inspections lagged year-ago pace by 13 percent. In the week ended February 15, US soya export sales showed net cancellations for the first time in 2017-18. While February cancellations are not necessarily uncommon, they might not pave a path to 2.1 billion bushels, especially with a big Brazilian crop about to flood the market.
This is the time of year that the United States hands Brazil the title of leading soyabean source, but buyers have already been choosing the South American beans. Trade data released over the weekend showed that China's import price for the Brazilian product in January was cheaper than the US one for the first time since September. There is evidence, however, that demand for US soyabean meal has increased in the wake of Argentina's woes.
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