Soybean yields may be major thorn in bulls’ sides: Braun

All signs are pointing to a bin-busting U.S. soybean crop that could upend markets

Expectations surrounding the U.S. soybean crop keep growing. Not only is a reality check in order — in terms of whether such big yields are even possible — but the impact on domestic stocks may be of greater interest.

Analysts were expecting soybean yields to rise to 51.5 bushels per acre in the U.S. Department of Agriculture’s monthly crop production report, issued Oct. 12. The reality was 51.4 bushels per acre, still a healthy rise.

This yield is far above the previous record of 48 bushels per acre, set last year. The 2014 crop holds second place with 47.5 bu./ac., and both 2009 and 2013’s bu./ac. of 44 is a distant third place.

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Lately, the market cannot seem to decide whether it is bullish or bearish on soybeans with impressive demand but even more impressive supply. But the bear may be in control in Chicago, as CBOT soybean futures are back near mid-April levels, having lost 22 per cent since their June 10 high.

For what they are worth, word-of-mouth harvest reports as well as those floating around social media seem to confirm the market’s yield position comfortably over 50 bushels per acre.

With a solid argument for enormous yields out of 2016’s harvest, the pressure on demand is mounting.

Although record yields of the previous two years imply fantastic weather during the soybean-growing season, this year’s weather was even better.

The 2014 and 2015 seasons were perhaps a bit too wet at the start of the vegetative growth period, when soybeans actually prefer to be somewhat drier, similar to this year. But the rainfall in August is really what set 2016 apart from its predecessors.

August is the primary month for soybeans across the country to be setting and filling pods, and precipitation is key at this stage. Rain was plentiful just about everywhere in August 2016.

Emily Carolan, an account manager with DuPont Pioneer, said this year’s soybean crops received stress at exactly the right times, which is how yield expectations have grown as large as they have.

“Heat and sunlight earlier in the summer helped the plants put on height and develop a good canopy,” Carolan said. “The August rains extended the typical growth period, allowing plants to put on even more pods.”

But the rains can be both a blessing and a curse. Heavy August rainfall was Carolan’s one hesitation about pushing this year’s soybean yields too far up.

“Too much rain — especially in warm weather — can lead to disease issues,” she said. “Disease could be a limiting factor this year, and it may not be worked in to current market estimates.”

Although there is not widespread talk of disease-related yield losses around the country, soybeans were only 44 per cent harvested as of Oct. 9. Additionally, farmers may be hesitant to broadcast struggles with disease, preferring instead to show off their bin-shattering fields.

Year-on-year U.S. soybean supply is expected to increase at three times the rate of the previous year. And this is taking into account USDA’s 2016-17 estimates as of September, not including USDA’s anticipated two per cent increase to the current crop on Oct. 12.

Domestic soybean production has increased over 10 per cent since USDA’s initial outlooks in May, and as such, carry-out has steadily risen as well. Industry analysts expect that 2016-17 U.S. soybean carry-out will increase to 413 million bushels from September’s 365 million.

Although the point has been made that USDA has a recent tendency to largely overstate U.S. soybean carry-out early on in the marketing year, a possible crop of 52 bushels per acre — or larger — had never previously been in the discussion. This puts increasing pressure on the demand structure to balance out the swelling supply.

Crushing has traditionally been the No. 1 use of soybeans in the United States, but exports grabbed that title last year and are expected to continue the trend. Record soybean exports slated for the 2016-17 marketing year would help keep supply at bay, but its feasibility can be challenged.

The United States is the world’s primary source of soybeans between now and February, when the South American supply will come online, so the size of crops in competitors Brazil and Argentina will be a major factor in the U.S. export scenario. The actual capacity of the U.S. port and river system also comes into play, and this is a bit harder to pinpoint.

Both corn and soybean sales in the new marketing year are at very respectable levels, especially compared with last year, so U.S. grain shippers already have a busy year ahead. Export inspections data implies that actual shipments since Sept. 1, the start of the 2016-17 campaign, are 18 per cent ahead of last year for soybeans and corn is 179 per cent ahead of last year.

Like soybeans, domestic corn supply is also piling up so there may be some stiff competition at port between the two.

Historical monthly export data shows that during the peak soybean-shipping season, October through February, the largest corn volumes have rarely coincided with the largest soybean volumes.

Although this topic admittedly warrants a separate investigation, the data may suggest that record shipments of both grains are unlikely over the next few months, meaning one may end up losing out.

But if domestic yields end up pushing even higher and/or South America churns out a big crop early next year, U.S. soybean supply could fatten up very quickly and double-digit soybean future prices could be a thing of the past.

About the author


Karen Braun is a Reuters market analyst based in Chicago. The views in this column are her own.



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