Lower soy production, carry-in stocks may lead to record prices

By Ron Kotrba | September 12, 2012

The USDA released its highly anticipated soybean forecast Sept. 12, and for the U.S. biodiesel industry, which gets about half of its feedstock from soy oil, this could have a profound impact on feedstock prices come springtime.

The average yield was reduced in this drought year by 6.2 bushels per acre compared to last year and another 0.8 bushels per acre from USDA’s August estimate to a nine-year low of 35.3 bushels per acre. Not only is production anticipated to be lower than expected, but the estimated carry-in stocks of 145 million bushels were reduced to 130 million bushels.

 “We could see a very big crunch on the soybean stocks, meaning the potential for historically high prices in the spring,” said a risk management consultant for a large commodities firm, adding that at the start of the new marketing year 63 percent of soybean exports are “already on the books.”

“With that said, the USDA may have underestimated export demand,” the source said. “If we look at price today, there’s no rationing of demand. Right now, everybody’s looking at it saying, ‘We’re not going to export as much as last year, we’re not going to crush as much as last year, so we’ll be fine at the end of the year.’ But what we’re saying is, given the pace we’re on, we’ll get to a point where we’re going to run out of stock here before the end of the [marketing year], so we’re going to have to have prices jump to a higher level than what they’re at now to curtail demand.”  

USDA revised down expected crush by 15 million bushels and exports by 55 million bushels. The source said USDA reduced the crush and export figures by 70 million bushels to solve for a minimally acceptable 115 million bushel carryout to begin the marketing year.

Now is the time to put some type of coverage on for expected soy oil purchases in coming months, the source said. “Keep in mind, there are private analysts who think yield may go as low as 32 bushels an acre, so there’s a lot of room for less production. The big question is do we put a ‘two’ in front of the soybean price.”

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