This past week was all a buzz about the U.S. Department of Agriculture Outlook Forum. USDA forecasted soybean acreage at 71 million acres planted. They also showed an increase in new crop crush and a decline in new crop exports. With an increase of 11.6 percent in plantings, average yields and "lower usage," ending stocks are expected to remain very low at 170 million bushels and, near pipeline levels. Also, not far from this year's projected stocks of 160 million bushels. Furthermore, stocks as a percent of usage, according to the USDA, is forecast to be at 5.7 percent, I think even tighter, and this is without a weather issue. Oh, what a spring and summer we are looking at. The soybean is being driven partly by policies for biofuels. But, food concerns is now in the picture. The fight for acres should spill into 2009, and, therefore, prices can still move higher.
The Energy Independence and Security Act of 2007 has mandated a schedule of usage for corn based ethanol that goes from 9 billion gallons this year to 15 billion gallons in 2015. The prospect of corn usage for ethanol is helping to anticipate bare minimum corn carry-over in 2008 to '09. This will set up a real fight for acres this year. In fact, the acreage fight has begun. The mandate for biodiesel usage is not as aggressive at 500 million gallons in 2009 and increases to 1 billion gallons in 2012. In the latest S&D report, the USDA increased crush 5 million bushels and increased exports by 10 million bushels. The net result was a carryout of 160 million bushels.
The 160 million bushels is 5.3 percent stocks as a percent of usage, and, near minimum pipeline supplies. Even with an increase in acres, carry-over of 160 million bushels into the new crop year will not provide any cushion against possible crop problems this growing season. U.S. exports to China are at 10.94 million metric tons, up 12 percent from 2006 to '07. In fact, export commitments are second highest since 1979. China has experienced the worst winter in central and southern provinces in nearly 50 years. Approximately 60 percent of that country's rapeseed crop in planted in that region. Latest estimates of loss is that 67 million birds have died, more than 4 million heads of hogs were lost, 862,000 homes damaged or destroyed and the number of cattle and sheep losses was staggering. With price controls on food in place before this occurred, pent up demand should be robust.
China needs to import another 5.27 million metric tons of soybeans this season. We are at a time when the Chinese government will spend at all costs, to buy food to keep demonstrations at a minimum. It would not look good to the rest of the world in front of the Olympics. Certainly, doesn't appear that rationing is here.
The USDA has Brazil's exports targeted at 26.89 million metric tons versus 20.7 million metric tons last year. Nearly a 30 percent increase. Taking a monthly maximum percent of the last three years, would tend to indicate an export number short of the USDA's estimate. Current soybean sales in Brazil are forecast at 55 to 60 percent sold. What price will it take this market to ration? If, sales were to equal last year's pace over the rest of the crop year, exports would equal 1.14 million bushels. That would imply only 30 million bushels in ending stocks. I think soybean prices can go higher. Furthermore, China holds over a trillion dollars in reserves and with the Yuan appreciating, we will see them export their inflation to the U.S. and buy food. They are in need. They are buying food cheaper this way and just as they are pumping money into U.S. banks, etc., they will spend their money here first as long as supply lasts and as long as the dollar depreciates to the real. I am bullish.
