USDA gave their initial projections for the 2024-25 marketing year during the February Outlook Forum, which failed to offer any support for the floundering futures market. November futures posted their first weekly gain in eleven weeks this week as the expanding balance sheet both this year and next year weighs heavily on prices.
Sign up to get our daily insights, market commentary, and alerts!
USDA has projected acres within half a million of 87.5 million acres for the last three years. USDA has overestimated soybean acres each of the last six years, when compared to final acres. Rumblings surrounding this year’s acreage forum indicate that is likely to be the case again this year, as farmers favor corn, despite higher input costs, as the potential to grow a bigger crop and turn a profit lies more in corn than beans. Still, crop rotations dictate much of the planting decisions in higher productive acres, leading to a likely increase in soy acres from last year. The average miss in the last ten years is 1.26 million acres, giving a relatively tight range of expectations for the upcoming Prospective Plantings Report at the end of March.
USDA has projected yield too low in six of the last ten years. Following impressive gains in yield in the 2010’s, yields have relatively flatlined into the early 2020’s. USDA is once again projecting yield at 52 bushels per acre, in line with last year’s projection. Soybeans have proved to be more resilient to drought conditions, posting a record yield in 2021. The 2016 record yield of 51.95 bushels per acre still stands firm. Production projections have remained steady near 4.5 billion bushels for four-consecutive years at Outlook Forum, despite actual production falling short of that mark the last three years.
The supply side of the balance sheet came in slightly above expectations, leading ending stocks to come in above expectations as well. It is still uncertain how much crush demand will grow in the coming years. More and more plants are coming online, though margins have tightened as meal and oil prices have undergone heavy selling. USDA still came in above their prior long-term forecast at 2.4 billion bushels for 2024-25, above the current 2023-24 estimate at 2.3 billion bushels. Crush has surpassed the required pace needed to hit the current crop year forecast, though plants have been crushing at capacity as Argentine crush is down due to last year’s drought. USDA is generally very good at estimating crush, most recently noted by this year’s estimate just 10 million bushels off their Outlook Forum projection, as the average deviation for final crush over the last ten years is 60.6 million bushels. Current crush capacity expansion can be compared to the mid-2000’s ethanol boom – crush is seem as booming throughout the 2020’s, but just how fast it happens is up to question. IF plants come online as expected, one could expect crush demand to grow faster than USDA currently expects, though the agency remains quite conservative at this juncture.
Exports are seen as jumping from the current marketing year to 1.875 billion bushels, 155 million bushels above the current USDA estimate. Export demand has taken a hit, especially recently, as Brazil continues to take market share from U.S. origin exports. As China is de-incentivized by the Phase 1 trade agreements coming to an end, they have turned into bargain shoppers, with Brazil generally being the cheaper option. South American jumping once again year-over-year is likely to keep that pressure on U.S. soybean exports, especially if Trump wins the election in November and follows through with even more strict trade practices. USDA has overestimated exports in four of the last five years, with 2020 being the odd year out, when exports were boosted by trade agreements with China.
Recent years have shown USDA to be too optimistic on both production and use. A portion of that bias can be attributed to abnormally dry weather in recent years persisting across crop years. A drop in production will almost always have a similar negative effect on use. If acres come in as high as USDA projects, the recent price slide is likely to continue, though crushing demand should continue to pick up and make up for a portion of sludging exports. USDA’s projection sees ending stocks as rising to 430 million bushels, well above the current crop year’s projection at 315 million bushels. Continuing weak prices is likely to boost demand, though at what point prices are “cheap enough” remains to be seen.
Get all of Blue Line Ag Hedge’s insights, alerts, recommendations, and more delivered to your inbox! Click Here to Learn More!
Trading involves substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading and hedging advice, along with market information is based on information taken from trade and statistical services and other sources Blue Line Ag Hedge, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading and hedging advice, along with market information reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. Past performance is not necessarily indicative of future results.
Leave a Reply