Economist’s Angle: Markets Await the New Crop

Jun 01, 2023

By Scott Gerlt • ASA Chief Economist  

The 2022/23 U.S. soybean crop was much smaller than originally anticipated. The perspective plantings report at the end of March originally indicated 91.0 million acres of soybeans. The subsequent June Acreage Report reduced planting estimates to 88.3 million acres. USDA estimated a trend yield of 51.5 bushels per acre as the crop was planted. Actual plantings were further reduced to 87.5 million acres, and the realized yield was 49.5 million bushels. These factors resulted in a crop initially projected to be 4,640 million bushels shrinking to 4,276 million bushels. The decline in production helped support soybean prices for the 2022 crop. While the use of U.S. soybeans is slowing for the marketing year, an ample South American crop and expected large U.S. harvest this fall is weighing on markets.

Despite a smaller crop than originally expected, soybean demand remained strong in the 2022/23 growing season. Soybean crushing capacity in the U.S. is continuing to expand. The National Oilseed Processors Association represents about 95% of the domestic crushing industry. In March and April of this year, their members set crush records for the months (Figure 1). North America is now entering the season where crush typically slows down as crop supplies grow tighter and crush plants perform maintenance. NOPA members would have to average crushing about 168 million bushels per month for the remainder of the marketing year to meet USDA’s estimated 2022/23 crush. The high crush levels have resulted in the highest stock levels for April among NOPA members since 2020.

Figure 1

Soybean oil prices have fallen since December 2022 while, at the same time, crop production issues in Argentina have supported soybean meal prices. The steady soybean meal and whole bean prices have not been able to overcome the lower soybean oil prices resulting in deteriorating crush margins. Figure 2 shows the crush margins based upon future prices and assumed crushing yields. Cash prices have tended to run above the futures prices, resulting in higher crush margins than implied by the futures markets. However, the general pattern remains where crush margins that rose during 2021 through the end of 2022 have been falling. Recovery in vegetable oil markets around the world, coupled with potentially tepid biofuel blending levels over the next few years, has taken away the extra incentive to crush. Only when the new crop hits the market do margins recover in the futures market. This is not due to higher prices for soybean oil or meal, but rather due to lower soybean prices that arise from the new supply. The markets are sending the signal to perform maintenance now in anticipation of the fall harvest.

Figure 2

While crush in the U.S. will likely slow down over the next few months, exports have already begun slowing their pace (Figure 3). Low Mississippi River levels last fall put soybean exports behind normal levels at the start of the marketing year. Once conditions improved, exports quickly hit their stride and remained close to last year’s levels. The export pace has been falling considerably the past several weeks and will likely continue this course because of outstanding soybean sales to other countries remaining low.

The reason for the slow pace at this point is that Brazil has an abundant soybean crop, while U.S. supplies are tightening. Brazil is currently harvesting a record soybean crop of 155.0 million metric tons (5.7 billion bushels). For comparison, its previous record was 139.5 million metric tons during the 2020/21 marketing year. The soybean crop, when added to other crops, significantly exceeds Brazil’s ability to store its product, resulting in the South American beans looking for a home. At the same time, Brazil’s currency remains relatively cheap, providing a benefit to exporters. This has resulted in Brazilian soybeans for export being priced about $1.50 per bushel less than U.S. beans for export. The South American country has only exported about half of the 93.0 MMT projected by USDA. Brazil will either need to quicken its export pace or continue exports into the fall to reach that amount.

Figure 3

While the U.S. is expected to have its lowest ending stock level since 2015/16 at 215 million bushels this year, the statistic is not as noteworthy as it might initially suggest. South America typically supplies the world with soybeans this time of year and will continue to do so through the summer because of the size of its harvest. In fact, USDA is expecting the largest world soy ending stocks for 2022/23 in the last three years.

As the world ending stocks remain large, the U.S. will begin harvesting the 2023 soybean crop. It is too early to have a very accurate look at the harvest, but the prospective plantings report indicated that producers intended to plant 87.5 million acres, which would match 2022 plantings. A trend yield of 52.0 bushels per acre would result in a harvest of 4,510 million bushels, which would be a record. Soybean plantings are going well, with 83% complete compared to the prior five-year average of 65%. Although there are still many unknowns, this bodes well for production. In fact, there is currently a $1.50 spread between the July and November future contracts—largely due to the harvest. As planting finishes and the crop matures, and the harvest size becomes clearer, the markets will respond.