September Soy Supply Surprise
On Monday, September 12th, USDA released their monthly World Agricultural Supply and Demand estimates, and traders were watching closely to see how the USDA would respond to expectations of a smaller corn crop. In the report, USDA did lower corn production, shrinking acreage 1.2 million acres and lowering yield 2.9BPA to 172.5, and those moves were largely in line with the trades’ expectations. The wildcard came in the Oilseeds portion of the report where, after incorporating data from USDA NASS a month earlier than usual, planted soy acreage was reduced by 600,000 acres, on top of a drop in expected yield to 50.5 bushels per acre.
Those two factors brought ’22 soy production down 153 million bushels to 4.378 billion.
These numbers caught traders by surprise, as expectations had been for a small drop in yield and no expected change in acreage. That big drop in expected supply certainly tightened up the balance sheet, which, after USDA’s adjustments to expected demand, showed the ’22-23 soybean carryout at 200 million bushels. If their predictions hold true, that would be the lowest carryout for domestic soybeans since 2012 – and the USDA is making some bold assumptions to keep 200 million bushels of beans in the pipeline.
On the demand side, to offset the massive reduction in production, USDA first assumed a 70 million bushel drop in US whole bean exports for the coming marketing year, and then they dropped crush demand by 20 million bushels as well; and it’s these demand reductions that raise the most questions.
Globally, stocks of soybeans remain fairly tight, and US soybean exports are expected to stay rather brisk; 2,085,000,000 bushels headed out the door according this September report. That would be fewer beans exported from the US than in both 2020 and 2021. In order for that to happen, this first Brazilian soybean crop would have to be massive; otherwise, I have a hard time envisioning a world less reliant on American soybeans.
The crush question is another interesting point to ponder. The September WASDE did still have overall crush demand for soybeans climbing relative to both 19/20 and 20/21 marketing seasons, which does jibe with the overall industry trends. But the big question is about continued soy crush expansion.
Midway through the summer of 2022, there were new crush facilities under construction which, once completed, would drive an additional 450 million bushels of soybean demand. The climb in construction and energy costs over the past six months has no doubt slowed some of those projects, but the fervor for sustainable aviation fuel, renewable diesel, and conventional biodiesel continues to drive investments in to the veg oil industry.
As those combines start to roll on the shrinking soy crop of 2022, keep your eyes on the demand side of the ledger. Supply will become fairly static once the US crop is in the bin, but global changes to demand will continue to be shaped by geopolitical conflict and likely by the continued push for “decarbonizing” the energy sector; both factors that could drive a soybean demand surprise on a future WASDE report.
– Mike Pearson