Tight soybean market 'leaves little margin for output error' - UBS


Record US soybean yields alone will not be enough to sate global demand for the oilseed, with prices very susceptible to any shortfall in South American prospects, UBS said.

"Based purely on supply and demand fundamentals, soybeans remain most susceptible to US production and South American planting disappointments," said the bank.

And UBS said that of the main traded grains, "soybean demand trends are the most constructive," thanks to heavy US exports, and limited South American competition.

The bank as its central forecast predicted modest support for soybean prices, seeing them rise to $10.00 cents a bushel on a one-year horizon, up from the $9.57 ѕ a bushel that November 2017 futures were priced at on Wednesday.

But if high corn prices persuade farmers to up plantings of the grain, at the expense of soybeans, prices of the oilseed could rise further.

Tight stocks

The most recent US Department of Agriculture world crop output and demand estimates, released in September, showed world soybean supplies being supported by a record harvest.

But UBS saw a "greater story" in the 2015-16 demand figures.

The cut to US soybean stocks estimates has "increased the importance of South American planting expectations and crop conditions", UBS said, with demand also more important.

Strong export sales

"US export commitments this year (forward sales) have been especially strong," the bank said, noting that export sales are the second highest level on record.

Total export sales now account for 45% of the USDA's total export forecasts for the 2016-17 season, compared to an average of 30% at this time in the year.

And higher demand for soybean products, particularly soyoil, will keep soybean crush margins in the US and Chinese strong, the bank said.

Battle for acres in South America

"The building South American crop and policy risks support the preference for US origin," said UBS, noting that a delay to Argentina's export tariff reduction plan reduces the likelihood of pent-up supplies flooding into the global markets and pushes export demand back toward the US".

Farmers in South America are choosing between sowing soybeans and corn for the next crop.

Prices in Chicago suggest that soybean acres should grow at the expense of corn.

"But this year, South American predictions have been complicated by high domestic corn prices because of a poor crop in 2015–16," said UBS.

"We believe domestic factors and prices will play a more dominant role in South American farmers' decisions in 2016–17," UBS said noting that their estimate for a 2% increase to soybean acres in the region was "at risk".

"If these risks materialise, soybean prices would have a compelling bullish structural story," UBS said.


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