Todd's Take

By Todd Hultman
DTN Analyst

By now, you have heard USDA lowered its estimate of U.S. ending soybeans stocks from 475 million bushels to 430 mb for 2017-18 in Thursday's WASDE report and watched November soybeans jump up 28 cents last week to its highest close in over two months.

It is an understatement to say crop prices don't normally make new highs during harvest time, especially when the U.S. soybean harvest is expected to total a record high 4.43 billion bushels this year. Not surprisingly, it didn't take long for some on Twitter to question the market's bullish response.

Asking what is so bullish about 430 mb of U.S. ending soybean stocks is a fair question. After all, that is significantly higher than what the 2016-17 year had, which was 301 mb. If we only focus on last week's U.S. estimates, Thursday's big gain looks suspect.

However, world soybean numbers reveal a potentially bullish scenario that many may not yet realize. Consider that according to USDA, 83% of all soybean exports will come from either the U.S. or Brazil in 2017-18. As mentioned, the U.S. is in the process of harvesting a record high 4.43 bb, and USDA's early estimate for Brazil's next soybean crop is 3.93 bb or 107.0 million metric tons.

If true, that would be the sixth consecutive big soybean crop for Brazil. As one customer reminded me this weekend, many still look at USDA's WASDE report and think USDA is estimating Brazil's ending soybean stocks at 21.96 mmt or 807 mb. But USDA's WASDE report does not estimate Brazil's ending stocks -- 21.96 mmt is a mid-year estimate that reflects Brazil's soybean supplies on Sept. 30. For USDA's estimate of Brazil's ending stocks, we have to go to Table 22 of USDA's World Markets and Trade report for oilseeds.

To view the table click here: http://bit.ly/…

Table 22 shows USDA estimating Brazil's ending soybean stocks at 5.0 mmt or 184 mb as of Jan. 31, 2018, the end of its 2016-17 season. For the 2017-18 season just getting underway, USDA estimates Brazil's ending stocks at just 90 mb.

The obvious point here is that after five consecutive years of good growing weather, Brazil needs another year of good weather just to avoid falling short of soybeans. And if you follow DTN's daily market weather video with Senior Meteorologist Bryce Anderson, you know central Brazil is off to a dry start in the new planting season.

Brazil's new soybean season has several months to go, and for all we know, it may still turn out to be a good crop year. At this point, however, we have to acknowledge it wouldn't take much of a production hit to substantially reduce those 430 mb of ending soybeans USDA is estimating for the U.S. That is why soybean prices showed a bullish response to last week's WASDE report. Unlike other grains, the holders of short positions in soybeans have good reason to be nervous.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

(BAS/CZ)