Sugar Markets Remain Soft; Soybean Situation Tightens

2011/12 USDA U.S. Grain Ending Stocks (mln bu.)

2012/13 USDA U.S. Grain Ending Stocks (mln bu.)

Macro-Economic

• The euphoria over the Spanish bank bailout has faded, and markets are realizing that the bailout is not going to be enough to stem Europe’s debt crisis.
• In addition, Italy’s debt issues have come to a forefront as the country’s borrowing costs have skyrocketed over the past few months.
• The USDA updated the supply/demand estimates this morning: the U.S. soybean situation is getting tighter.
  • On the old crop (2011/12) balance sheet, projected ending stocks declined 35 mln bu. to 175 mln bu.
  • USDA increased crush 15 mln bu. and exports 20 mln bu. to 1.660 bln and 1.335 bln, respectively.
  • The new crop (2012/13) U.S. soybean balance sheet also tightened up with the reduction in beginning stocks. The USDA was forced to reduce both crush (10 mln bu.) and exports (20 mln bu.) to make the balance sheet  “work”.
  • In the end, 2012/13 U.S. soybean balance sheet saw ending stocks reduced 5.0 mln bu. to 140 mln and the stocks-to-use ratio decline to 4.3%, the lowest June figure ever projected by the USDA.
  • On the 2011/12 U.S. soybean oil balance sheet, production was increased due to higher crush which was partially offset by an increase in domestic disappearance.
  • The increase in domestic disappearance is linked to an increase in biodiesel production, but keep in mind USDA is no longer separately reporting soybean oil use for biodiesel production.
  • In the end, 2011/12 U.S. soybean oil ending stocks increased to 2.590 bln lbs. from 2.565 bln lbs. last month.
  • On the 2012/13 U.S. soybean oil balance sheet, ending stocks were reduced 90 mln lbs. to 2.135 bln lbs.
  • The reduction in 2012/13 stocks is the due primarily due to a reduction in production (lower crush). Tighter stocks translate to higher basis values.
  • USDA released updated crop conditions last night:
    • For all practical purposes, soybean planting is complete.  As of June 10, 97% of expected soybeans acres were planted.
    • The surprise came in the drop in crop conditions rating (the same holds true for corn)—as of June 10, 60% of the U.S. soybean crop was rated good-to-excellent as compared to 65% last week.
    • The rain event is over and the next 10 days to two weeks look dry for the majority of the Corn Belt.  There has been some more rain put in the forecast for SE Corn Belt and Great Plains in the 6- to 10-day forecast.
    • The dryness may discourage some wheat producers from planting double-crop soybeans, which the market was depending upon to boost this year’s soybean acreage and therefore production.
    • MPOB did release the May Malaysian palm oil data yesterday which showed a reduction in end-of-May stocks, down 4.5% from April.
    • Bull spreading meal/oil continues to be a trade the market is willing to put on—watch that relationship for a change.
    • Wet conditions in western Canada, specifically Saskatchewan, are preventing planting of this year’s canola crop.

Vegetable Oil—CBOT soybean oil futures are trading lower today, unchanged to 10 pts. lower.

Price Outlook: Despite wild swings, July soybean oil futures are consolidating in the $0.48-$0.51 area.

Wheat—futures are trading lower this morning, Chicago is down $0.10-$0.15 per bu., Kansas City down $0.10-$0.15 per bu. and Minneapolis down $0.10-$0.20 per bu.

2012/13 USDA U.S. Grain Ending Stocks (mln bu.)

• Highlights from USDA report:
  • The highlight was the higher than expected U.S. all winter wheat production estimates, down only 10 mln bu. from last month.
  • HRW production declined only 8.0 mln bu. from last month to 1.024 bln lb., well above the trade’s expectation—there is a trade view that due to early harvest the HRW June production estimate is more accurate than in past years.
  • The old crop balance saw an increase in exports (+30 mln bu.) which resulted in a reduction in 2011/12 ending stocks to 728 mln bu.
  • On the new crop balance sheet, the reduction in production (51 mln bu.) and 10 mln cut in feed/residual saw ending stocks dip to 694 mln bu, while not burdensome there is no reason to be concerned about upward pressure on prices.
  • Wheat market is also following corn down, after corn supply/demand estimates were bearish.
  • Wheat market is still feeling harvest pressure from HRW harvest in the southern Great Plains.

Price Outlook: July Kansas City wheat continues to trade in a range between $6.40-$6.70 per bu.

Sugar–#11 sugar futures trading lower this morning with nearby contracts trading 15-25 pts. lower.

• The price support of the last several days is the result of ongoing concerns about rains in Brazil hampering harvest and a smaller crop than expected.
• Nearby world sugar futures have popped back up over the psychologically important $0.20 mark, but upside resistance is expected in the $0.21 area.
• The USDA released updated U.S. sugar supply/demand projections this morning showing larger supplies.
  • On the 2011/12 balance sheet, USDA increased Mexican imports to 1.139 mln STRV from 992,000 STRV last month.
  • There were no changes made on the demand side of the balance sheet, so ending stocks increased to 1.825 mln STRV from 1,670 mln last month, while the stocks-to-use ratio went from 14.2% to a more comfortable 15.5%.
  • Likewise on the new crop balance sheet, USDA raised Mexican imports from 1.117 mln STRV last month to 1.304 mln STRV this month.
  • Adding in higher beginning stocks and imports and no changes to demand, ending stocks increased 341,000 STRV to 1.561 and the stocks-to-use ratio went from 10.3% to 13.1%.
  • U.S. sugar market remains very quiet, with spot pricing ill defined.
  •  Domestic trade is looking for early planted sugarbeets to be harvested early with hopes of easing any late-season supply crunch.
  • Mexican sugar prices continue to firm, which is going to make Mexican sugar less attractive for export to the U.S.

Price Outlook: U.S. sugar prices remain weak and today’s revised supply/demand tables reinforce the market’s view that prices will remain soft.

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