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Column: Computing U.S. soybean carryout scenarios

CHICAGO - The United States' soybean carryout shocker among the government's initial 2016/17 estimates last Tuesday has sent analysts and traders scrambling back to their own balance sheets to re-crunch the numbers.

Karolyn Zurn holds soybean seed
Agweek file photo.

CHICAGO - The United States' soybean carryout shocker among the government's initial 2016/17 estimates last Tuesday has sent analysts and traders scrambling back to their own balance sheets to re-crunch the numbers.

At the close of the next marketing year in August 2017, the U.S. Department of Agriculturepredicts that the United States will have 305 million bushels of soybeans left over, down nearly 25 percent from the 400 million bushels slated for the current year.

The huge drop in predicted carryout stems mostly from an increase in crushing and exports, along with a slight drop in production. USDA expects the world's No. 1 producer and No. 2 exporter of soybeans to both crush and export record volumes into next year.

Prior to the May 10 report, the trade had been expecting 2016/17 U.S. soybean ending stocks to be placed somewhere between 290 million bushels and 500 million bushels, with an average of 405 million bushels.

Although the 305 million-bushel estimate falls into this range, survey participants whose projections came in on the low end of the range were likely estimating what 2016/17 ending stocks would actually be in the end, not what USDA was going to predict initially since the agency is traditionally conservative on its first estimates.

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However, the market has bought in to the bullish forecast. Ever since May 10, November soybeans, representing the new crop, have traded sharply higher and have flirted with the $11 level over the past week after being below $9 in early March ( http://reut.rs/1XAjKsi ).

But many market participants doubt the feasibility of USDA's lofty demand goals with new-crop soybean futures soaring much higher than the $9.10 average price used by USDA in deriving its new balance sheet items.

Before considering demand, we first need to make the crop. Let us take a look at what might happen to 2016/17 soybean carryout under different acreage and yield scenarios, and then consider how different demand scenarios could affect the final outcome.

 

TESTING AREA AND YIELD COMBINATIONS

Given USDA's soybean yield estimate of 46.7 bushels per acre, production changes by 4.6 million bushels for each tenth of a million acres gained or lost. For each tenth of yield gained or lost, production changes by 8 million bushels given the current acreage prediction of 82.2 million acres.

Let us assume for argument's sake that the 2016/17 U.S. soybean demand and use estimated by USDA is the reality. Depending on how area and yield perform, what is the resulting impact on carryout?

Referring to the first calculator chart, soybean carryout scenarios are computed based on various acreage and yield combinations. The carryout is calculated using the items from USDA's 2016/17 U.S. soybean balance sheet ( http://reut.rs/1XAjDx0 ).

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Based on the rising soybean futures in recent weeks, the market is expecting actual soybean acreage to increase from the 82.2 million acres predicted in the March planting report. Assuming soybean acres could conservatively climb to 83 million acres, yield can afford only a slight fall from the current prediction to 46.2 bushels per acre to maintain USDA's carryout estimate of 305 million bushels.

Regardless of how many soy acres are gained, if the United States runs into weather problems later in the season, yield could end up closer to the 2013/14 result of 44 bushels per acre or lower. Given the 2013/14 case, next year's ending stocks would almost certainly dip below 200 million bushels and potentially below 100 million bushels if the gains to soybean area over the March planting report are not significant.

This exercise demonstrates the sensitivity of production to changes in area and yield, meaning even the slightest alterations can have big consequences. But what if we instead alter demand in this model?

 

ALTERNATE DEMAND SCENARIOS

Now let us assume that USDA begins to factor in a higher farm price for soybeans and this, in effect, skims some demand and use off the top. How would things change if 2016/17 demand and use end up no larger than they were in 2015/16, represented by calculator 2 ( http://reut.rs/1TZP1Ss )?

If demand ends up flat on the year, soybean carryout would rise 82 million bushels over the current year when leaving USDA's 2016/17 soybean production estimate unchanged. But if area increases as expected, and yield is unchanged or larger, U.S. soybean carryout could venture into the 500 million to 600 million-bushel range at the high end.

Assuming 2016/17 demand at 2015/16 levels, soybeans could also afford a much lower yield (44.5 bushels per acre) and still arrive at USDA's current carryout prediction. That would still be the third-largest yield in history, behind 2014 and 2015's respective yields of 47.5 and 48 bushels per acre.

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Finally, let us assume a middle scenario between the former two that were examined, which is represented by calculator 3 ( http://reut.rs/1TZP9S7 ).

Suppose that soybean crush and exports do not reach USDA's record projections, but instead meet the previous respective records. This would be 2014/15 for exports and 2015/16 for crush.

Assuming the 305 million-bushel target is maintained, some wiggle room is offered to yield, but not as much as was offered by calculator 2. But again, with a little added acreage and reasonably good yields, 2016/17 soybean carryout could come right back up to 2015/16 levels, or even exceed them.

We will not receive more clarity on soybean acreage until USDA's June Acreage report, which will be released on June 30. August is the most important month in terms of weather for soybean yields, so we may not have a truly informed yield estimate until the middle or the end of August. Until then, the scenarios will have to suffice.

Related Topics: SOYBEANSCROPS
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