Old- and new-crop soybean demand ahead
The recent sharp break in old-crop soybean prices and basis indicates that the market believes that supplies will be fully adequate until the harvest of the new crop begins in six or seven weeks. For that to be the case, the domestic crush in July and August would have to be down sharply from the level of crush last year and sharply below the pace in June of this year.
For old-crop soybean stocks at the end of the year to be at a pipeline level of 125 million bushels, and to accommodate exports of 1.33 billion bushels, the size of the domestic crush for the year ending August 31 will be limited to 1.66 billion bushels. That is 2.5% less than the crush in the previous year. Based on estimates from the National Oilseed Processors Association, the domestic crush exceeded that of last year in each of the first five months of the current marketing year (September 2012 through January 2013). The crush was about equal to that of a year ago in February 2013 and was less than that of a year ago in each month from March through June. The crush in both May and June was about 11% smaller than in the same months in the previous year. For the entire 10-month period, the crush this year exceeded that of last year by about 1.6%. The crush during the final two months of the marketing year needs to be 24% less than that of a year ago in order to maintain a minimum pipeline supply by year end. The size of the needed reduction underscores the surprise in the timing and magnitude of the recent collapse of old-crop soybean prices.
It is possible that the domestic crush could be larger than 1.66 billion bushels if exports fall short of the 1.33 billion-bushel projection, ending stocks are reduced to less than 125 million bushels, or June 1 stocks were actually larger than estimated. To reach 1.33 billion bushels, exports during the final five weeks of the marketing year need to average only 4.6 million bushels per week, only about 1.4 million above the most recent five-week average. It appears exports will be very close to the projected level. Year-ending stocks of 125 million bushels represent 4% of projected marketing year consumption. In recent history, the smallest year-ending stocks were 112 million bushels in 2003-04. However, those stocks represented 4.5% of marketing year consumption. It appears unlikely that year-ending stocks this year could be much less than 125 million bushels.
It is possible that old-crop soybean supplies are more abundant than implied by the June 1 stocks estimate, requiring a smaller reduction in the domestic crush in July and August. There is no reason to suspect that supplies are larger than estimated other than the recent sharp decline in prices. Still, September 1 stocks estimates have been surprisingly large in some years resulting in an upward revision in the estimated size of the previous year's harvest. The most recent examples were in 2007 and 2012 when the estimate of the previous year's crop was increased by 90.6 million bushels and 37.5 million bushels, respectively.