Southern crops hold the key to US soybean outlookThe U.S. Department of Agriculture will provide its first state-level assessments of U.S. soybean production potential on Aug. 12, and traders will watch for projections on production potential among the top Midwest growing states as crops there enter their most critical and rain-dependent development phase.
By: Gavin Maguire, Reuters
CHICAGO — The U.S. Department of Agriculture will provide its first state-level assessments of U.S. soybean production potential on Aug. 12, and traders will watch for projections on production potential among the top Midwest growing states as crops there enter their most critical and rain-dependent development phase.
But much of the crop grown across the U.S. South is in a far more advanced state than that grown across top Midwest states such as Iowa and Illinois. Southern crops could be available weeks ahead of Midwestern supplies.
The quantities are substantial. The top 10 growing states across the South produced a record 658 million bushels of soybeans in 2013 and are on course to top 700 million bushels this year thanks to a 12 percent climb in planted area from a year ago and kind growing conditions so far this season.
So market trackers gauging the scope and vulnerability of the 2014 U.S. crop must not overlook the advanced state and scale of southern production. Growers there could well fulfill a large share of near-term demand weeks before the majority of the national crop is even ready for harvest.
Getting the hang of it
Helping drive the climb in southern soybean production in recent years has been the steady climb in crop yields, as the region’s growers have enjoyed bigger productivity gains than their more established counterparts in the Midwest.
While planted acres across the top 10 soybean producing states have grown around 20 percent since 1990 to 17.9 million acres, production in the South has grown by close to 100 percent due to a 70 percent climb in crop yields.
These output advances compare with a 16 percent climb in yields and a 50 percent rise in production in the top five states in the Midwest over the same period. Southern growers have been effective at implementing modern practices and techniques in soy production.
As crop production in the South has improved, growers there have had to become adept at marketing their bountiful supplies. Southern states have far fewer traditional soybean demand centers such as crushing facilities than the Midwest.
But thanks to the earlier start to the growing season, Southern growers can offer their crops to consumers much earlier than their Midwestern counterparts. Crop originators have been willing to do business with Southern growers in increasing tonnages in recent years, even though those supplies are often farther away from most domestic crushers.
Exporters have also shown a keen interest in Southern supplies. Earlier availability and the shorter hauling distance to major ports in the U.S. Gulf helps these crops compete for overseas consumer demand against foreign sellers.
Combined, these consumers have ensured steady demand for Southern soybeans, enticing producers to keep dialing up acreage and production across the region.
The upcoming USDA report is expected to reveal that Southern growers are on course to deliver a record amount of fresh supplies again this year, which will likely be available to consumers and exporters weeks ahead of the crops grown across the more established areas.
If USDA also reveals that Midwest growers are set to harvest record crops this year, Southern growers could enjoy a big advantage in being able to deliver their crops to market well ahead of the competition.
At the very least, the more advanced state of the Southern crop should give producers there greater confidence to secure sales deals, as Midwest growers remain uncertain of their crop’s potential.
So market trackers looking for clarity on the outlook for the U.S. soybean market must pay close attention to the South, as a record amount of supplies are set to emerge from the region this year. This could plug demand until the rest of the U.S. crop becomes ready in the fall and potentially set the stage for a downward leg in crop prices.