How Much Will US Soybean Demand Rise in 17/18?
May 09, 2017
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On the eve of the first USDA WASDE (World Agricultural Supply and Demand Estimates) report to include their balance sheet estimates for 2017/2018 I sit here wondering about soybean demand for the upcoming marketing year. Global soybean demand has grown consistently and rapidly over the last two decades and China has been the leader. Will it be more of the same next year?
Domestically, soybean demand has shown signs of waning recently. The soybean crush has fallen short of expectations in the last few months and will likely prompt the USDA to lower their expectations for the current marketing year. If this trend were to continue it would be difficult to expect a significant increase in domestic soybean demand for next year. This can certainly change however, especially if soybean meal exports were to pick up significantly.
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The real optimism for soybean demand comes from exports. In the last 20 years US soybean export demand has been increasing on a consistent basis. China has had a seemingly insatiable appetite for soybeans and the hope is that other regions are on a similar path. On the other side of that coin global production of oil seeds has increased dramatically in recent years led by good crops in the US and South America. China has also made a push to increase soybean production and this could be the key going forward.
China accounts for nearly two-thirds of global soybean imports according to the USDA. However, the USDA said in their outlook forum back in February that they expect China’s soybean imports to slow on a percentage basis after nearly two decades of double digit growth. This could be largely due to the push for more soybean acres domestically in China. Still, growth is growth and Chinese demand along with growing demand in the rest of Asia and the Middle East/North Africa region should support an increase in 2017/2018.
The problem may be that South America, and Brazil in particular is coming off a record crop that exceeded expectations by a significant margin. To make matters worse producer sales have been at a slower pace than normal meaning there will be a lot of competition in the global export market. This, along with (what is now) a favorable currency advantage could put a significant dent in US exports and could offset much of the growth in global demand.
So, it will be very interesting to see what the USDA has to say on the subject on their first 2017/2018 WASDE balance sheet. In years past the USDA has been conservative on their growth estimates only to be proven wrong down the road. Last year they were more aggressive on export demand and they were pretty close to where the current marketing year exports look to end up. This leads me to believe that they will be on the aggressive side again this year. However, I do have my concerns and for now at least I will stay on the more conservative side (looking for US soybean demand to increase less than 100 million bushels) for my 2017/2018 balance sheet. I think we should all keep these factors in mind and take any aggressive demand expectations with a grain of salt, for now.
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JulyCorn Daily chart:
JulySoybeans Daily chart:
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