AgriCensus Report

ANALYSIS: Are US soybean ending stocks too low at 995m bu?

Last Friday the USDA published its first pass at global production and supply of soybeans for the 2019/20 marketing year.

Record stocks this year and next are on the cards, with US soybean ending stocks this year expected to fall just short of 1 billion bushels at 995 million bushels.

That will feed into substantial ending stocks next year of 970 million bushels: and that comes out even with a chunky 5% fall in production slated for next year.

To put that figure into context it is more than three times the size of soybean stocks at the end of the 2016/17 marketing year – before the trade war started – and equivalent to almost six months of domestic use.

But given the report was written before the escalation of the trade war between China and the US, are even these massive figures too low?

Last Wednesday, China’s government said it would retaliate against President Trump’s plans to tax more Chinese imports and on Monday the ministry of finance announced a raft of new tariffs.

But beside those retaliatory measures, few traders think China will make good on its politically-motivated goodwill purchases of soybeans that have been booked and not shipped.

Out of the 20 million mt of US soybeans China said it would buy during previous negotiations, it has to date contracted to buy just 12.5 million mt, according to USDA figures.

Given US exports sales for the current marketing year stand at 45 million mt versus USDA estimates made before the escalation of the trade spat 48.3 million mt, the ending stock forecast doesn’t take into account too much additional demand.

But that likely doesn’t take into account the prospect of cancellations of those goodwill purchases.

Out of the 12.5 million mt that have been contracted, just 5 million mt has been shipped, leaving 7.5 million mt to load out of US ports in the next 16 weeks if the USDA’s forecast ending stocks of 995 million bu is to be reached.

“As far as I can see, there are almost no fresh trades for US corn or beans from June onwards,” a US-based market source told Agricensus.

Given that dynamic, should China pull the rug on the existing purchases it is very likely that the psychologically-significant level of 1 billion bushels in ending stocks could be reached.

Brazil to benefit?

China has bought 42 million mt of those beans from October through April, and with five months to go it is expected to take the same again, according to government forecasts published Friday.

With China’s National Grain and Oil Information Centre estimating May and June deliveries at 7.5 million mt and 8.5 million mt, respectively, 27 million mt will need to land between July and September if the import target of 85 million mt is to be reached.

With those delivery dates equating to May through July loading out of Brazil or the US Gulf, and with Brazil having exported just 25 million mt out of a 70 million mt projection so far, Brazilian farmers will easily be able to cater for additional Chinese supply.

On Friday, in anticipation of a spike in Brazilian demand, soybeans traded on an FOB basis at the port of Paranagua in a huge 100,000-mt clip.

“Huge volume on June,” said one market source.

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