U.S. Soybean Supplies Keep Market Guessing

As recently as the August and September WASDE reports, the U.S. soybean balance sheet looked like it was in for another year of tight supplies and possible demand rationing. With the release of the September 1 stocks report, however, things don’t look quite as dire.

At the time of this writing, the USDA has not yet released the October WASDE, but the market has had no shortage of data to digest over the last 30 days. On the September WASDE, the USDA lowered the national average soybean yield to 50.5 bushels per acre (bpa) from 51.9 bpa in August. Harvested acres were also cut, removing 150 million bushels (mb) from their August projection. After that report, the market believed it was time to go into rationing mode. Then came the September 1 stocks report.

On the September 1 stocks report, the National Agricultural Statistics Service surprised the market by revising up last year’s crop by 30 mb. That may not seem like much, but it had the effect of raising last year’s national average yield to 51.7 bpa from 51.4 bpa. The reason this is significant is it could put upward pressure on the 2022/23 soybean yield after September’s downward revision. Crop conditions on the most recent weekly crop progress report showed 55% of the U.S. crop rated good or excellent vs. 58% a year ago in early October. If the perception of the market goes from one in which the crop is getting smaller to one that the crop is stabilized, or even possibly getting a bit larger, it would mark a sharp contrast to the conventional wisdom accepted in mid-September.

While supply is still grabbing headlines, most in the trade are realizing that demand will quickly take center stage. The big concern in the trade is export demand with the USDA already forecasting exports to fall to 2.085 billion bushels (bb) from 2.145 bb last year and 2.266 bb in 2020/21. Chinese demand has been less than stellar as they continue to battle slowing economic activity due to persistent covid-related lockdowns. That reality, when coupled with what should be record acres planted in Brazil this fall, is a major headwind for a U.S. balance sheet which is seen as getting larger.

Last, but certainly not least, we would remiss if we didn’t mention the U.S. Dollar Index when discussing exports. At the time of this writing, the U.S. Dollar Index is trading just off the highest level in over 20-years, spurred higher by tightening monetary policy in the U.S. and around the globe. In addition, while economic concerns are visible in the United States, we remain comparatively better than many other developed countries around the globe. The greenback at 20-year highs, coupled with a Federal Reserve committed to squashing inflation, and the perception of rising global supplies should make Q3 and Q4 of 2022 a difficult environment for soybean prices.

The U.S. Dollar Index rose to 20-year highs at the end of September, hurting U.S. soybean competitiveness against global competitors.