Global Soybean Shortage Could Become Major Surplus in 8 Months

U.S. and foreign soybean stocks are extremely low right now as a result of strong demand and a poor crop in South America.  However, if the weather cooperates the world may have a glut of soybeans in only about 8 months.

The Department of Agriculture (USDA) currently id forecasting U.S. soybean stocks at the end of August at only 110 million bushels (2.99 mmt). That would be only a 13-day supply and one of the lowest on record. The stocks are so low because of record exports in the 2008/09 marketing year with exports to China up by over 40% compared to last year. 

 

One reason exports have been so high this year was the terrible crop Argentina had this year as a result of its worst drought in 50 years. Argentina’s production wound up being only 32 mmt compared to earlier expectations of 51 mmt and production last year of 46.2 mmt. The drought also cut production in Paraguay, Uruguay, and southern Brazil. A year ago the 4 countries had a combined soybean crop of 114.95 mmt, but this year their production fell to only about 93.5 mmt. Because of this the countries will have relatively little soybeans on hand to export or crush for export when the U.S. begins to harvest its 2009 soybean crop and their bins will be almost totally empty when their marketing seasons end in 2010.

 

There is a good chance the global soybean shortage which now exists will turn to a major surplus next year. The U.S. appears to be poised to harvest its largest soybean crop in history in 2009. USDA is currently forecasting a crop of 3.26 billion bushels (88.723 mmt). However, if the weather and rainfall cooperates the rest of the season the crop could be even larger. A crop approaching 3.5 billion bushels (95.3 mmt) is not out of the question.

 

Analysts in South America expect farmers in Argentina and Brazil to plant more soybeans for harvest in 2010 than in they did last year. Some in Argentina expect plantings to be up by as much 10% as cash-short farmers shift out of more expensive crops like corn into soybeans. The shift in Brazil will not be as pronounced, but a 5% increase in plantings is certainly possible if farmers get the financing they need to put in a crop. If the planting estimates prove correct and South America has good weather in the growing season it is quite possible that the combined production of soybean production in Argentina, Brazil, and Paraguay could reach 125 mmt, 31.5 mmt more than in 2009. 

 

What the large crops in the U.S. and south America could mean is that the production of soybeans in the 5 countries that mainly supply the global export market could be over 45 mmt greater than they produced in the past crop year. That would be huge considering that total global soybean exports in the current marketing year are estimated at 73.77 mmt. Never before has there been such a 1-year increase in production. 

 

There is no way at this point to know if the large crops suggested above will actually occur. That will depend on weather and many other factors over the next 8 months. However, if the large crops do occur the price of soybeans is likely to plummet. That would set up the likelihood of plantings dropping sharply in the U.S. in 2010 as farmers shifted to more promising crops.  Analysts need to pay close attention to the evolution of the U.S. and south America crops over the next 8 months.