Dakota Ag Cooperative 
Tuesday, July 7, 2015  
 
 
 
- DTN Headline News
Todd's Take
Tuesday, July 7, 2015 8:56AM CDT

By Todd Hultman
DTN Market Analyst

I understand if readers tire of hearing me talk about soybean demand this year and how it has been repeatedly underestimated by USDA and the market in general. However, this is turning out to be one of the two most fascinating stories for grains in 2014 -- rain being the other -- and USDA just gave us more ammunition in last week's report of June 1 supplies.

On June 30, USDA said there were 625 million bushels of soybeans on hand as of June 1 and, had soybeans traded lower on report day, headlines would have reminded us that soybean prices were cursed by record high plantings and the highest supplies in three years. Instead, November soybeans jumped up 57 1/4 cents and headlines cited less-than-expected supplies.

As a guy who listened to Senior Analyst Darin Newsom make a bullish case for soybeans as far back as January, I also wrote about this theme of soybean demand being stronger than expected back on Feb. 24 ("Soybeans Looking Up") and Apr. 7 ("Just Between Us"). It was gratifying to see June stocks come in at 625 million bushels, but I still get the sense that most do not understand how bullish this is for soybean prices.

The key for understanding demand isn't just the amount of soybeans on hand, but the pace of disappearance. After last fall's record U.S. harvest, the 2014-15 season began with an estimated 4.068 billion bushels of soybeans. Having 625 million bushels on June 1 means that 85% of soybeans are gone after three quarters.

In the past 10 years, soybean use in the fourth quarter has ranged from 9% to 16% of beginning supplies. Obviously, we don't have enough beans for 16% use this year. The two years that showed only 9% use in the fourth quarter also had cash soybean prices above $12 per bushel to help ration demand.

Just as a guess, let's say demand totals 11% of beginning supplies in the final quarter. That leaves ending stocks of 178 million bushels for 2014-15, far below USDA's current estimate of 330 million. Guessing the final number is tricky, but it is likely to be significantly lower than most are currently expecting and every bushel removed in 2014-15 also comes off the ending stocks estimate for 2015-16.

For those still stuck on the idea that June 1 supplies were the highest in three years, you should know that over the past 12 years, there is a strong negative correlation of 94% between the percent of soybean disappearance in the first three quarters and the ending stocks-to-use ratio. If the historical pattern holds true, this year's disappearance of 84.6% by June 1 suggests a U.S. ending stocks-to-use ratio of less than 5%. Once again, that is far below USDA's current estimate of 12.7% and points to higher soybean prices ahead.

Where are all the beans going? The strong early pace of exports is waning, but the incentive to crush soybeans here in the U.S. remains strong. Crush premiums based on July and August futures contracts are at $1.88 and $1.81 per bushel, respectively; among the highest incentives for both over the past eight years.

With DTN's national index of cash soybean prices near their highest prices in 2015, many producers have taken advantage of the recent rally to cash in and that is understandable. However, if the current pace of demand stays near its historical pattern, there should still be higher prices ahead. USDA's September 30 Grain Stocks report is on track for a bullish surprise.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

(CZ/BAS)


blog iconDTN Blogs & Forums
DTN Market Matters Blog
Katie Micik
Markets Editor
Tuesday, July 7, 2015 3:54PM CDT
Thursday, July 2, 2015 3:27PM CDT
Monday, June 29, 2015 6:06PM CDT
Technically Speaking
Darin Newsom
DTN Senior Analyst
Sunday, July 5, 2015 3:06PM CDT
Saturday, July 4, 2015 12:59AM CDT
Saturday, July 4, 2015 12:58AM CDT
Fundamentally Speaking
Joel Karlin
DTN Contributing Analyst
Tuesday, July 7, 2015 3:23PM CDT
Monday, June 29, 2015 3:40PM CDT
Friday, June 26, 2015 12:24PM CDT
DTN Ag Policy Blog
Chris Clayton
DTN Ag Policy Editor
Tuesday, July 7, 2015 4:33PM CDT
Wednesday, July 1, 2015 7:42PM CDT
Monday, June 29, 2015 10:06PM CDT
Minding Ag's Business
Marcia Taylor
DTN Executive Editor
Thursday, June 25, 2015 10:28PM CDT
Wednesday, June 24, 2015 7:46PM CDT
Monday, June 22, 2015 6:41PM CDT
DTN Ag Weather Forum
Bryce Anderson
DTN Ag Meteorologist and DTN Analyst
Tuesday, July 7, 2015 11:34AM CDT
Thursday, July 2, 2015 1:53PM CDT
Wednesday, July 1, 2015 4:22PM CDT
DTN Production Blog
Pam Smith
Crops Technology Editor
Friday, June 19, 2015 7:19PM CDT
Friday, June 12, 2015 9:47PM CDT
Friday, June 5, 2015 6:11PM CDT
Harrington's Sort & Cull
John Harrington
DTN Livestock Analyst
Thursday, July 2, 2015 6:04PM CDT
Friday, June 26, 2015 8:56PM CDT
Friday, June 19, 2015 5:21PM CDT
South America Calling
Alastair Stewart
South America Correspondent
Wednesday, June 24, 2015 3:33PM CDT
Tuesday, June 23, 2015 3:16PM CDT
Friday, June 19, 2015 6:50PM CDT
An Urban’s Rural View
Urban Lehner
Editor Emeritus
Tuesday, July 7, 2015 11:29AM CDT
Monday, June 29, 2015 6:12PM CDT
Tuesday, June 23, 2015 12:19PM CDT
Machinery Chatter
Jim Patrico
Progressive Farmer Senior Editor
Thursday, June 25, 2015 4:49PM CDT
Thursday, June 18, 2015 2:47PM CDT
Monday, June 15, 2015 1:54PM CDT
Canadian Markets
Cliff Jamieson
Canadian Grains Analyst
Tuesday, July 7, 2015 2:45PM CDT
Friday, July 3, 2015 5:33PM CDT
Thursday, July 2, 2015 5:33PM CDT
Editor’s Notebook
Greg D. Horstmeier
DTN Editor-in-Chief
Tuesday, June 30, 2015 8:29PM CDT
Tuesday, June 23, 2015 8:58PM CDT
Tuesday, June 16, 2015 6:05PM CDT
 
Copyright DTN. All rights reserved. Disclaimer.
Powered By DTN