U.S. Soybean Exports May Be Less Impressive Than They Seem: Braun

(Reuters) – The United States has been shipping an eye-popping amount of soybeans lately, but this year’s high expectations render the current export pace as nothing out of the ordinary.

And there are already signs that the world’s No. 2 soybean supplier might actually risk an underwhelming performance by year end.

Coming off of the largest-ever domestic soybean harvest, the U.S. Department of Agriculture has set a hefty export target for the 2016/17 marketing year of 55.8 million tonnes, or 2.05 billion bushels. A record 52.7 million tonnes (1.936 billion bushels) of the oilseed were shipped out of the United States last season.

Soybeans are indeed leaving the country at a record pace. Official export data from the U.S. Census Bureau confirms the unprecedented volume through the first two months of the marketing year – September and October – which is up over 20 percent from last year.

Through Dec. 1, year-to-date soybean export inspections totaled 26.1 million tonnes. This compares with 21.9 million tonnes through Dec. 3, 2015, and 23.7 million tonnes through Dec. 4, 2014.

One can consider the percentage of annual expectations already fulfilled by looking at year-to-date inspections against USDA’s November demand estimates for both the current and past seasons. In this light, 2016/17 is not particularly special.

Export inspections suggest the United States has shipped just below 50 percent of its expected annual volume in 2016/17, which is slightly lower than previous seasons. This is partly due to the fact that the latest figures have an ending date that is earlier than in the previous few years, meaning that the year-to-date data contains fewer days.

But even when accounting for the difference in dates, this year’s soybean shipping pace implied by inspections is at best equal to its predecessors – not significantly ahead of them.

The Census data also confirms that 2016/17 soybean exports are not necessarily ahead of normal pace. Some 27 percent of the annual target has been shipped through October, which is slightly higher than the previous year but only second-highest of the previous five years.

By no means does this analysis imply that the U.S. soybean exporting campaign is going poorly, but there is a long way to go if the country is to ship more than 2 billion bushels by Aug. 31.

LOOMING RISKS

USDA’s early-season estimates of U.S. soybean exports over the past three years have been too timid, as the final volumes landed between 7 percent and 13 percent higher than the agency’s November figures.

Therefore it is perfectly reasonable to bake in some upside to the 55.8 million tonnes expected for 2016/17. But the competition from South America may be stiffer than ever and pending what happens over the next couple of months, there is a decent chance that USDA’s target may have to come down.

Brazil, the United States’ No. 1 competitor in soybean trade, is on track to harvest more than 100 million tonnes of the oilseed for the first time ever, and the crop looks to be in great shape thus far.

In fact, things are moving along so nicely in Brazil that the agency expects that Mato Grosso, the country’s largest producing state, will begin harvest later in December, earlier than usual thanks to efficient planting and plentiful rains.

The United States tends to dominate international soybean trade through March, but Brazilian competition could arrive on the market sooner than expected if favorable weather permits the early start to harvest.

Another red flag for U.S. soybean exports is the marked lag of purchases from countries other than China, the primary buyer. Just fewer than 22 percent of year-to-date soybean sales originate outside of China, but this figure was closer to 26 percent in the previous two years.

With China looking to import 86 million tonnes (3.16 billion bushels) in 2016/17, both U.S. sales and shipments to the world’s leading consumer will certainly continue, but the East Asian country could just as easily switch its source to Brazil next month, particularly if it is cheaper.

If Chinese sales begin to slow, other countries will have to step up their purchases in order to keep U.S. soybean exports on pace. The weekly sales and inspections data over the next several weeks will be the most telling as to how the situation is unfolding.

It is also worth recalling that the United States was able to comfortably exceed its original soybean export target in 2015/16 due to anomalously large Chinese demand at the tail end of the marketing year, resulting from late-season crop losses in Brazil.

U.S. soybean carryout is projected at 480 million bushels in 2016/17, but USDA could adjust this figure on Friday in its monthly supply and demand report, due at noon EST.

The domestic soybean crop is currently pegged at 4.36 billion bushels, but the agency does not revise harvest volume in its December report. The potential exists for this number to get bigger when it is finalized in January, and this would place even more stress on carryout, particularly if the export campaign starts slipping.