Soybean convergence bodes well for prices

Todd Hultman is closely monitoring a potentially “very bullish” situation for the soybean market.

Freight on board (f.o.b.) soybean prices for July have dramatically narrowed between Brazil and the United States.

Soybean prices in Paranagua that were US$1.75 per bushel lower than those in New Orleans in February are now a mere 12 cents cheaper.

“It’s uncommonly early for those two prices to converge this quickly,” DTN’s lead analyst said during a recent webinar about the latest U.S. Department of Agriculture’s WASDE report.

It is reminiscent of 2020, when corn and soybean prices started to rapidly escalate after the world discovered that Chinese demand was much stronger than anticipated.

“When I start to see this situation with the Brazilian price, it makes me think very much of that,” he said.

That glimmer of hope was a nice respite from an otherwise bearish discussion about the May WASDE report.

The USDA is forecasting 445 million bushels of U.S. soybean ending stocks in 2024-25, up from 340 million bu. in the current crop year.

“If that works out to be true, it will be the highest ending stocks for soybeans in five years,” said Hultman.

The USDA is forecasting an average farm price of $11.20 per bu. in 2024-25, down from $12.55 this year.

Things get really scary looking ahead, with the USDA forecasting global ending stocks of 128.5 million tonnes in 2024-25, up from 111.78 million tonnes this year.

That is based on an estimated Brazilian crop of 169 million tonnes, which would be 15 million tonnes more than this year.

However, Hultman said that’s getting way ahead of the game because the USDA is still trying to get a handle on this year’s Brazilian crop. Its 154 million tonne estimate is well above Conab’s 146.5 million tonnes.

He doesn’t think the USDA has properly accounted for losses caused by recent flooding in southern Brazil.

Another concern for the upcoming crop is that soybean crush margins are shrinking because soybean oil demand from the biofuel sector hasn’t been as strong as anticipated.

U.S. soybean exports have also been lacklustre, with 1.42 billion bu. shipped through May 2, an 18 percent decline from the same time last year.

The USDA is forecasting 2.1 billion bu. of corn ending stocks, which is below trade expectations of 2.25 billion bu.

“This is a little bit of a friendly report,” said Hultman.

The average farm price for 2024-25 is forecast at $4.40 per bu., down from $4.65 this year.

World ending stocks for 2023-24 are estimated at 313.08 million tonnes, but that is based on 122 million tonnes of production in Brazil and 53 million tonnes in Argentina.

Conab is pegging Brazil’s crop at 111 million tonnes, while the Buenos Aires Grain Exchange believes farmers in Argentina will harvest 46.5 million tonnes.

So, there is much reconciling ahead in the coming months.

The USDA is forecasting 312.27 million tonnes of corn ending stocks in 2024-25, which would be similar to the past three years. But again, that is way out on the horizon.

The United States has exported 1.356 billion bu. of corn as of May 2, a 30 per cent increase from one year ago. The USDA believes exports will hit 2.15 billion bu. by the end of the year.

However, ethanol margins are concerning. The difference between corn’s processing value and the price of corn in Iowa has shrunk to $1.51 per bu. from more than $3 last fall.

The good news is there has been a nice rebound in new crop corn prices since late February, when prices were extremely low.

That is due in a large part to speculators liquidating their short positions in the market because of South America’s weather problems.

Tags: USDA, Brazil, prices, United States, soybeans, ending stocks, forecast, Market