{"id":1947,"date":"2019-11-27T12:00:39","date_gmt":"2019-11-27T12:00:39","guid":{"rendered":"http:\/\/commodityconversations.com\/wordpress2\/?p=1947"},"modified":"2019-11-27T09:32:11","modified_gmt":"2019-11-27T09:32:11","slug":"agricensus-report-50","status":"publish","type":"post","link":"https:\/\/commodityconversations.com\/wordpress2\/2019\/11\/27\/agricensus-report-50\/","title":{"rendered":"AgriCensus Report"},"content":{"rendered":"

OPINION: Soybean futures risk is to the upside, trade deal or not<\/h3>\n
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At a time of rising geopolitical tension between the US and China and with a trade deal appearing less likely to be on the horizon, what upside opportunities are there for soybean prices?<\/p>\n

The answer seems to lie in the sharp fall in ending stocks projected by the USDA for this marketing year.<\/p>\n

From the 2018\/19 to 2019\/20 marketing year, the USDA ending stock forecasts have virtually halved from 913 million bushels (24.85 million mt) to 475 million bushels (12.92 million mt).<\/p>\n

In the modern era of grain trading, we can find three times when this situation has more-or-less happened.<\/p>\n

The first was from the 2012\/13 marketing year to the following marketing year when the carryout went from 143 million bushels down to a modern-day record of 92 million bushels.<\/p>\n

Futures prices averaged $14.76\/bu in the 2012\/13 season, but then actually fell to an average of $13.53 at the beginning of the 2013\/14 period despite the pressure on stocks.<\/p>\n

We can attribute this to two factors.<\/p>\n

Firstly, the 2012\/13 crop was hit by a drought crippling the harvest in 2012. Secondly, soybean production rebounded the following year to a record high with traders then realising that large bushel volumes were headed their way.<\/p>\n

So, if this first example was the exception, what about the other two cases?<\/p>\n

From the 2006\/07 marketing year to 2007\/08, ending stocks fell from 574 million bushels to 205 million bushels. And in this case, tighter supply did have an impact on prices, with average nearby futures rising from $7.30\/bu to $12.58\/bu.<\/p>\n

For the third example, from the 1994\/95 year to 1995\/96 soybean ending stocks fell from 335 million bushels to 183 million bushels.<\/p>\n

In this period, average soybean futures prices hit $7.39\/bu in 1995\/96, up from the $5.70\/bu average seen in the preceding marketing year.<\/p>\n

If you think that ending stocks still don\u2019t reflect the situation we are in because of the huge 2019\/20 beginning stocks then try this:<\/p>\n

The stocks to use ratio this 2019\/20 marketing year is projected to fall from 23% to 11.4%.<\/p>\n

Similar falls were witnessed in all three historical examples given, with the ratio falling in 2013\/14 to 2.6% from 4.3% in 2012\/13.<\/p>\n

From 2006\/07 to 2007\/08, the ratio fell from 18.7% to 6.7% and from 1994\/95 to 1995\/96 it fell from 14% to 7.8%.<\/p>\n

With exception of the first example that we can discount because of the large uptick in production for 2013\/14 year in addition to the very high average prices in 2012\/13, the other two examples saw average futures prices rise year-on-year by an average 72% (2006\/07 to 2007\/08) and 30% (1994\/95 to 1996\/97).<\/p>\n

I think that the risk is looking to be on the upside for the rest of this marketing year.<\/p>\n

Charlie Sernatinger is a broker with ED&F Man in Chicago.<\/em><\/p>\n

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