Soya Complex update – May 2012: ‘Unveils bullish triggers for the medium term’

The recently released USDA’s World Agriculture Supply Demand Report (WASDE) draws its significance from the fact that its is the maiden report to project the likely balance sheets for the new crop year 2012/13. it is worth noting that global edible oil markets have seen supply constraints build post second half of the marketing year which has led the prices to flare up, especially the CME soy complex. Therefore, in the first place, new crop supply projections are relaxed on the expectation that US soybean yields could bounce back after witnessing a fall this year. Similarly, SA soy crop estimations have also been encouraging as against the sharp drop in current year’s crop size in both Brazil ad Argentina. The report makes a clear note of the fact that, SA old crop supplies would be drained off sooner than normal and this would exert pressure on the US exports. This has been reflected by way of increments to US exports as well strong demand from China, while EU demand is left unchanged in anticipation of further eco-political realignments that could unfold in the months ahead.   

As far as the old crop balance sheet is placed, it is tilted towards the demand side with rise in US exports (as well as domestic crush) just a quarter prior to the end of the marketing year. As a result, US soybean stocks have been cut to 210mn bushels from the earlier 250mn bushels. This could be a psychologically a positive factor for the soy complex. Simultaneously, US soy oil balance sheet has been revised upward as a result of rise in production and poor demand in the wake of reduced consumption for bio diesel as energy prices recede. Rising stocks could weigh on the soy oil prices and with crude oil prices poised to stay mixed to weak in the short run, soy oil prices could be a laggard within the complex. Other major revisions pertain to deeper cuts to the South American soy crop with Brazil taking a 1mn cut to 65n tons and Argentina taking a 2.5mn ton cut to 42.5mn tons. As both these figures have already been discounted, fresh bullishness might be limited, while the underlying supply deficit scenario could offer lateral support to the prices moving ahead.

USDA impact assessment table

Key variables	May USDA	Apr USDA	Abs chg (May vs. Apr)	Impact Assessment
Crop Year 2011/12
US Soybean Crush, Mn Bu	1645	1630	15	Price impact could be limited as focus shifts towards new crop. Yet, it shall reduce the old crop carryin.
US Soybean Exports, Mn Bu	1315	1290	25	Official confirmation of the surge in weekly exports to china. Shall reduce old crop carryin. Price impact is positive.
US Soybean Ending Stocks, Mn Bu	210	250	(40)	Below the threshold 250mn bu and hence positive for the market.
US Soy oil production, Mn Lbs	19055	18780	275	Direct result of rise in soybean crush. Higher supplies could initially weigh on the sentiment.
US Soy oil stocks Mn Lbs	2565	2290	275	Additional stocks with just a few months to close the old crop year are deterrent for market, hence negative.
Crop Year 2012/13
US Soybean acreage, Mn Acres	73.9	--	--	Acreage is same as per Mar’12 intentions report. But the current brisk planting pace could lead to higher final acreage. Potentially discouraging for long term price trend.
US Soybean yield, Bushels/acre	43.9	--	--	This is the trend line yield and as the current year yields are poor, a recovery can be expected in the new crop. However, weather risk remains as EL-Nino/La Nina indicators are highly variable.
US Soybean Ending Stocks, Mn Bu	145	--	--	Sharp drop as a result of rising crush and exports particularly during 1st half of the next marketing year. Potentially bullish for prices.
Crop Year 2011/12
China Soybean Imports in Mn Tons	56	55	1	Clear indication of constrained SA crop and the shift in demand to US. Neutral to positive as prices have already factored in.
Brazil Soybean Production in Mn Tons	65	66	(1)	Official confirmation of the lower crop in Brazil and Argentina, stands supportive to the sentiment. Potentially bullish in the medium term.
Argentina Soybean Production in Mn Tons	42.5	45	(2.5)
World Soybean Ending Stocks, Mn Bu	53.2	55.5	(2.3)	Multi year low stocks and sharply lower compared to last year’s 70mn tons. Medium term bullish.
World Veg Oil Ending Stocks, Mn Tons	13.16	12.6	0.56	Incremental stocks as a result of increased soy crush in US and rise in oil stocks. Bearish as new crop supplies from US could turn bigger.
Crop Year 2012/13
China Soybean production in Mn Tons	13.1	--	--	Lower on yoy basis and could create incremental demand from the world’s largest consumer. Potentially bullish for medium to long term
China Soybean Imports in Mn Tons	61	--	--	Steep rise of 5mn tons on yoy basis leaves less room for any kind of supply threats pertaining to te new crop.
World Veg Oil Ending Stocks, Mn Tons	12.3	--	--	Projections above 12m tons which is discouraging for sustained price surges. Much shall depend on the US crop size and the extent of increase in Malaysian palm oil production given the looming weather anomalies.

Source: USDA, India Infoline Research