After pricing in transportation difficulties, active harvest pressure, a strong US dollar, and fears of slowdown in demand, January Soybeans managed to hold above the October 6 low this week, and this helped improve the technical picture.
Export demand has turned very strong in the past week, with China a more active buyer and with good pricing of US soybeans moving off the Pacific Northwest to Asia. On the daily wire today, private exporters reported the sale of 201,000 tonnes of US soybeans to China and another 132,000 sold to unknown destinations.
The weekly Export Sales report showed soybean sales at 2.335 million tonnes versus expectations for 1.7-2.5 million. Cumulative sales have reached 55% of the USDA’s forecast for the marketing year versus a five-year average of 51%.
There appears to be significant factors in play that could hurt demand for this season. Unless the weather is poor in Brazil or Argentina this coming season, the market looks vulnerable to more selling, especially if transportation issues continue.
World soybean ending stocks came in at 100.52 million tonnes versus an average expectation of 99.7 million in the October USDA update. This is the highest since 2018/19 and the second highest ever. Brazilian production was revised up 3 million tonnes to a new record high 152 million. World soybean production is expected to increase by 35.3 million tons for the new season, and soybean production for the world major exporters is surging to a new record high.
World and China total usage is expected to hit a record high for the 22/23 season, but more economists believe the global economy will experience a steep decline for 2023, and that global demand could suffer.
While traders are currently concerned with the dry conditions in Argentina, which has driven wheat production estimates all the way down to 15 million tonnes or lower from 22.4 million last year, the situation for soybeans is still uncertain. Corn plantings have reached just 17% complete as compared with near 26% last year at this time.
In the end, late plantings of corn and other crops in Argentina could lead to a significant switch to soybeans as soybeans can be planted much later than other crops. As a result, Argentina production could come in even higher than current estimates.
The low Mississippi River level may persist and export sales could continue to struggle. In fact, NOAA indicates that low water levels are likely to persist this winter as drier than normal weather is expected across the southern US and Gulf Coast. Drought currently spans 59% of the country and is expected to worsen in the middle and lower Mississippi River Valley as well as much of the West and Great Plains.
We also believe the rail situation could come to a head soon. If it leads to a rail workers strike, soybeans could quickly pile-up around the US.
While the market managed to temporarily hold the October 6 low due to very strong vegetable oil prices and a spurt in export news for soybeans and meal, the potential for more transportation problems in the US and the outlook for a record Brazil crop could keep the longer-term trend down following a short-term recovery bounce.
Originally Published October 21, 2022
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