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Soybean crop seen growing
Soybean production estimates for the USDA October Report came in at 37.8 bushels per acre, much above the September estimate of 35.3 bushels per acre, and it is indicative of a much larger soybean crop than expected just a month ago.
That production estimate is likely to rise even further in the November report, as crop sizes that get larger in October tend to see another rise in November.
This was a large revision higher, too, upping the U.S. soybean crop 9% from last month, a huge jump in just a short period of time. USDA also hiked demand considerably including exports by a whopping 20% (or 210 mb) and crush by 40 mb. The export sales and shipments numbers from soybeans continue strong, so these numbers may be somewhat accurate. Still, they garnered a lot of attention when it was all done in one report!
Pro Ag final yield models for soybeans indicate a 39 bushel-per-acre crop, so it's likely that USDA will hike the production number again in the November report, this time to near the Pro Ag yield number at 39 bushels per acre. That will ease the ending stocks number a bit, as the tight 130-mb ending stocks number in October is still a bit concerning to the soybean market.
Pro Ag still projects harvest lows for corn and soybeans to be near $6.75 December corn and $14 November soybeans. But we now need to start to pay attention to South American (SAM) weather forecasts, as there are still lingering areas of dryness in SAM that will take some rainfall to get over. Germinating the crop and providing the needed growing season rainfall are critical to the SAM crop, and the market will be sensitive to the growing season weather forecasts in this region.
For now, the two-week forecast has more rainfall than in previous weeks, but still there are areas in central Brazil that are still short in moisture, and the forecast continues dry in these areas. It will take a good soaking rain to turn the market's attention away from this region.
But you'll know when that forecast comes, as soybean prices will retreat quickly once the rainfall is there. Brazil is a tropical rainforest in many growing areas, so the rainfall is likely to come at some point.
U.S. weather forecasts don't matter too much now that corn harvest is around 85% complete (79% Monday, October, 15), and soybean harvest about 80% (71% as of Monday, October 15). But winter wheat planting is under way (71% complete, equal to normal), and the crop will need some moisture to get a good start in the 2013 growing season. HRW wheat areas got rain over the past weekend, which will greatly aid in germination, but more rain is needed in Kansas and areas north to get the crop germinated properly.
For now, that rain is still not in the near-term two-week forecast, so the germination will continue to be spotty in these areas.
Look for more attention paid to SAM weather forecasts for the coming few months, and less attention to U.S. crops as our growing season winds down.
The attention on the size of the final U.S. soybean crop will, however, continue to be an important market factor. Pro Ag's guess at near 39 bushels per acre would mean an extra 90 mb production, which, without any more demand switches would result in a 200-mb carryout number -- once again, comfortable. But with the most recent large USDA revision to demand (especially exports), it's unlikely USDA can resist themselves in adjusting demand to meet the crop size.
Pro Ag looks for more pressure on U.S. prices as we slide into winter trading, as U.S. soybean crop sizes will continue to grow, and U.S. demand for wheat and corn (especially poor on the export side) wanes.
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