Soybean Outlook Bullish?

For the first time since 2015/16, soybean yield in Brazil is in real danger of falling below trend – perhaps substantially. 2015/16 was the last year of significant dryness in Brazil during Jan/Feb. But should current two-week forecasts verify dryness this year will be noticeably worse – and more widespread – than in 15/16. CONAB on Thursday is expected to cut its Brazilian soybean production forecast to 118-119 MMTs, vs. 120 previously. Private estimates this week are trending closer to 116-117 million tons. And without a major weather pattern change by late Jan, it’s probable that Brazilian bean production this year will fall below 115 million tons.

The graphic below shows Dec 1-Jan 23 % of normal rainfall in major producing states. No state has seen anywhere close to normal precipitation.

So it’s pretty clear that dryness in Brazil is lifting soybean prices – and all global oil seed prices – but the issue now is whether the weather pattern there changes in the next 30 days? The answer is likely no.the graphic below shows NOAA’s South American February precipitation anomaly forecast.Confidence in long range weather forecasts is not overly high, but that no major forecasting model expects a return of normal precipitation and temps in Brazil is noteworthy.

And without a pattern change, the loss of Brazilian soybean production will indeed affect US exports. The USDA currently forecasts Brazilian bean exports at 76 million tons. This could easily fall to 66-67 million without needed rainfall between now and the very end of January.

This will push roughly 300-320 million bushels of world soybean demand to the US, particularly if the US and China can come to an agreement on trade policy. This demand shift should occur in the Sep-Nov period.The US soy market outlook is no longer ultra-bearish.

by Ben Buckner