USDA released its monthly World Agricultural Supply and Demand Estimates (WASDE) last Friday. Because the January WASDE report typically includes the final production estimates for the U.S. corn and soybean crops, very few domestic supply changes are anticipated in the February report and the focus turns to domestic consumption and South American production. With dry weather prevailing in Argentina and beneficial rains in Brazil, expectations for lower corn and soybean production in Argentina and higher production in Brazil were met.
Prior to USDA’s report being released, Conab (the Brazilian government’s crop agency) raised its forecast for 2012/13 soybean production to 83.4 MMT. USDA estimated Brazil’s soybean 83.5 MMT, in line with Conab’s forecast. Due to beneficial rains over the last several weeks in the central and western growing areas of Brazil, analysts and traders expected USDA to increase Brazilian soybean forecast from its 82.5 MMT forecast last month. The 1 MMT increase USDA made was larger than expected. In fact, the 83.5 MMT soybean forecast, if realized, would be a record large production for the country and 17 MMT higher than last year when drought lowered yields. The 83.5 MMT production is equivalent to 3.068 billion bushels of soybeans, which is 53 million more bushels of soybeans than the U.S. raised in 2012. This will mark the first time that Brazil soybean production has surpassed U.S. production.
It appears world soybean buyers are poised and waiting for the Brazilian supply of soybeans. While U.S. soybean prices rose over the last few weeks and exports remain robust, prices were softening by the middle of last week as Brazil moved into early harvest of soybeans. The number of vessels at Brazilian ports increased by more than 60% in the last week. However, rainfall is slowing early soybean harvest at this point. Further, Brazil continues to struggle with its rural infrastructure and movement of soybeans to ocean ports is a lengthy process. And, as is typical at this time of year, rumors of strikes amongst dockworkers indicate another possible slow-down in Brazilian shipments.
While USDA’s soybean forecast for Argentina’s soybean production of 53 MMT was close to expectations and was 1 MMT lower than last month’s forecast, it remains 13 MMT higher than last year. The increases in Argentine and Brazilian soybean production contributed to a 5 MMT year-over-year increase in world ending stocks for the 2012/13 marketing year. And, that’s despite a reduction in U.S. ending stocks of 1.21 MMT (44 million bushels) since last year. In fact, USDA lowered domestic ending stocks by 10 million bushels since last month’s estimate, resulting in the stocks-to-use ratio tightening to 4%. While all of this ending stock reduction was accomplished through an increase in crush use, the trade was somewhat disappointed that exports weren’t increased in February’s WASDE report.