Soybean prices tumble, grains ease on upbeat US harvest forecasts


Soybean futures tumbled after US officials lifted hopes for this year's domestic harvest by far more than investors had expected, with a smaller-than-forecast downgrade to corn yield expectations weighing on grain markets too.

Soybean futures for November, which had stood 0.9% higher ahead of the US Department of Agriculture's release of its monthly Wasde crop report, tumbled to stand 1.6% lower immediately afterwards, crashing down through its 200-day moving average.

The reversal reflected an upgrade revealed in the briefing of 1.7 bushels per acre to 50.6 bushels per acre in the USDA's forecast for the domestic soybean harvest yield this year.

The revision was far bigger than the 0.3 bushels-per-acre upgrade that investors had expected - and indeed exceeded even the most optimistic analyst forecast.

The revised figure - a record high by a distance, and factoring in all-time top yield results for states including the key Midwest "I" states, Illinois, Indiana and Iowa – was reflected in a 140m-bushel increase in the harvest estimate to 4.20bn bushels, again a far bigger upgrade than the market had forecast.

China import downgrade

As an extra potential threat to prices, the USDA also lowered its forecast for soybean imports by China, the top buyer of the oilseed, in 2016-17 by 1.0m tonnes to 86.0m tonnes.

Wasde US soybean estimates 2016-17, difference from previous figure, and (from market forecast)

Yield: 50.6 bushels per acre, +1.7 bushels per acre, (+1.4 bushels per acre)

Production: 4.201bn bushels, +141m bushels, (+112m bushels)

Carryout stocks: 365m bushels, +35m bushels, (+35m bushels)

Carryout stocks 2015-16: 195m bushels, -60m bushels, (-37m bushels)

Sources: USDA, Reuters.

However, the downgrade was attributed to "lower exportable supplies in Brazil" - besides improved expectations for China's own harvest and the release of supplies from state auctions – limiting the impact on the US trade performance.
Indeed, the USDA lifted by 60m bushels to 1.94bn bushels its estimate for US soybean exports in the newly-finished 2015-16 season, and by 35m bushels to a record 1.99bn bushels its forecast for shipments in the 2016-17 marketing year.

The revisions offset a little of the boost from the increased harvest estimate on expectations of year-end stocks – key in pricing projections.

Nonetheless, the forecast for carryout stocks at the close of the newly-started season, at 365m bushels, was well above market expectations.

Grain prices ease

For corn, the USDA cut its harvest forecast by 60m bushels to 15.09bn bushels, reflecting a 0.7 bushels-per-acre cut in the yield estimate, to 174.4 bushels per acre.

Wasde US corn estimates 2016-17, difference from previous figure, and (from market forecast)

Yield: 174.4 bushels per acre, -0.7 bushels per acre, (+1.0 bushels per acre)

Production: 15.093bn bushels, -60m bushels, (+66m bushels)

Carryout stocks: 2.384bn bushels, -25m bushels, (+55m bushels)

Carryout stocks 2015-16: 1.716bn bushels, +10m bushels, (+5m bushels)

Sources: USDA, Reuters.

However, these downgrades, which still left production and yield hopes at a record high, fell short of the reduction expected by investors.

Corn futures for December, which had stood at $3.40 a bushel, marginally down on the day, stood at $3.36 ј a bushel an hour after the report was released, a drop of 1.4%.

The decline dragged on wheat futures for December, which pared gains, falling from $4.08 a bushel in pre-Wasde trade to $4.04 ѕ a bushel afterwards, although this still represented a 0.4% rise on the day.

Indeed - the estimate for world wheat stocks, at 249.1m tonnes, a downgrade of more than 3.7m tonnes – was more than 2m tonnes below the market estimate.

'Storage issues will develop'

In fact, the world wheat inventory downgrade - reflecting a further cut in the estimate the European Union's rain-hurt harvest – represented a "slightly bullish" revision, according to Terry Reilly at Chicago broker Futures International.

Wasde world estimates 2016-17, difference from previous figure, and (from market forecast)

Corn: 219.46m tonnes, -135,000 tonnes, (+110,000 tonnes)

Soybeans: 72.17m tonnes, -70,000 tonnes, (-200,000 tonnes)

Wheat: 249.07m tonnes, -3.75m tonnes, (-2.27m tonnes)

Sources: USDA, Reuters.

However, he deemed the corn revisions "neutral to bearish", and the fresh soybean estimates as outright "bearish", terming "big" the forecast of inventories hitting 365m bushels at the close of 2016-17.

He added that "storage issues will develop this fall," a factor some commentators see as downbeat for prices in implying that farmers will be turned to forced sellers for at least some of their crop.

At Global Commodity Analytics, Mike Zuzolo said that "it's going to be hard to buy beans given today's trade", but did add, on a more sanguine note for prices, that "strong soybean demand cannot be understated at this time".

On grain prices, Mr Zuzolo said that "while the US numbers didn't support the prices as we head deeper into harvest, I think the world numbers for wheat and corn did - as both shrank this month versus August estimates".

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