US officials cautioned over the soybean rally, warning that lower prices may be needed to support exports against tougher rivalry from the likes of Brazil, where farmers have played a canny hand in exploiting the weaker real.
The US Department of Agriculture, explaining a 50m-bushel cut in Friday’s Wasde report to the forecast for US soybean exports in 2015-16, cautioned investors that “stronger competition may lead to far less dynamic demand”.
While Chinese buyers had helped US export prospects last month by agreeing outline purchases of 13.2m tonnes of soybeans, the USDA highlighted that the deals were “non-binding” and “mostly lack specific price or delivery terms for the sales”.
“It may take a further decline in US prices to precipitate a revival of actual sales contracts in the week ahead,” the department said, noting that US soybean export sales were as of the start of the month running 26% behind year-before rates.
Currency strategy
Indeed, US exports have faced “heightened global competition”, stoked in particular by Brazil which faces the prospect of another record harvest early in 2016, helped by farmers’ astute handling of the weakness in the real.
The drop in Brazil’s currency has underpinned local prices of crops, protecting them from declines in international markets, where ags are generally denominated in dollars.
“Many farmers have locked in these prices” by fixing sales already “for a fairly large share of intended production”, the USDA said.
And growers have reduced the setback from the weaker real, in terms of boosting prices of imported inputs such as agrichemicals and fertilizers, by having fixed purchases earlier in the year, at stronger exchange rates.
“Farmers purchased inputs as early as possible this year to avoid the rapid escalation of costs.”
The comments tally with
‘Irregular rains’
However, the comments come at a time when Brazil’s growers’ comfortable position is being challenged by poor weather in many regions, with rain needed for successful sowings dodging many central areas, while the south is seeing excessive precipitation.
The USDA highlighted that “soybean planting is now proceeding sporadically as farmers in the Centre West region await a seasonal increase in rainfall”, the Centre West including the top soybean producing state of Mato Grosso.
State research institute Imea estimates Mato Grosso soybean sowings at 6.1% complete, behind the 8.5% seeded a year ago.
“Irregular rains thus far in Mato Grosso has Brazilian soybean farmers cautious in the planting of their soybean crop,” said Michael
Cordonnier, the influential crop analyst.
“Temperatures in the state are in the upper 90s to low 100s Fahrenheit, so a light shower is quickly evaporated.”
‘Excessively wet’
Brazil’s soybean seeding setbacks have been seen as a large cause behind a rally of nearly 7% in Chicago futures in the oilseed from a September 11 low, with a pick-up in US exports, and reduced expectations for the US harvest, also fuelling the increase.
The USDA on Friday cut its forecast for the domestic harvest by 47m bushels to 3.89bn bushels, taking it below last year’s record result, thanks a reduced area expectation.
The department in its overnight reported highlighted the dent to spring sowings from “excessively wet soil conditions… particularly in Missouri where sown acreage fell by 400,000 acres from the previous estimate”.
Soybean futures for November stood up 0.1% at $911 ¾ a bushel in early deals in Chicago.
