February 9, 2009

Hot, dry weather is seen trimming South American soy production forecasts, while a solid US export pace, with strong Chinese interest in US soy, is seen tightening domestic carryout estimates in the US Department of Agriculture's February supply and demand tables.

 

The USDA's report is scheduled for release at 8:30 a.m. EST (1330 GMT) Tuesday (February 10).

 

The most important figures to watch in the report will be South American soybean production and their effects on the global balance sheet, analysts said. The USDA is likely to lower Argentina and Brazil's crop, based on adverse weather conditions in South America and private and government crop estimates.

 

The National Commodities Supply Corp., or Conab, estimated Brazil's 2008-09 crop year soybean production at 57.2 million tonnes. USDA estimated the crop at 59 million tonnes on Jan. 12.

 

Argentina's 2008-09 soy production forecast fell to 42.5 million tonnes as a result of smaller harvested area and an expected decline in overall yield due to the severe drought situation, according to a USDA attache report posted on the Foreign Agricultural Services Web site. USDA reported Argentina production at 49.5 million tonnes in its supply and demand report January 12.

 

The USDA historically is conservative on its revisions and with crop conditions improving by recent rains, they may take that into account and not trim as much off the crops as the trade has factored in, said Anne Frick, senior oilseed analyst with Prudential Bache in New York.

 

Argentina's crop could be cut by 2.5 million tonnes to 47 million, and Brazil's trimmed 1 million to 58 million, Frick said

 

"We believe that total Southern Hemisphere soy production has been reduced about 8.5 million tonnes from last year's level and also from USDA's current estimates," according to Dan Cekander, analyst with Newedge in Chicago.

 

Upcoming precipitation during the remainder of February will determine if any further production declines will occur, and USDA could lower their Argentine soy production to 45.0 million to 47.0 million tonnes and Brazil's soy production to 57.5 million to 58.5 million, Cekander added.

 

On the domestic balance sheet, the average of trade guesses from the 14 analysts surveyed by Dow Jones Newswires peg 2008-09 estimated US ending stocks at 203 million bushels, a 22 million bushel reduction from January's forecast. The estimates ranged from 123 million bushels to 230 million bushels.

 

Most analysts surveyed by Dow Jones were in agreement in regards to upward adjustments in exports, but the increase will be partially offset by a reduction in domestic crush.

 

"Export estimates should be pushed higher, as the pace of exports has averaged 12 percent higher than a year ago, better than the 5 percent currently assumed by the USDA," according to Hussein Allidina, economist with Morgan Stanley in a research note.

 

Offsetting the potential upward revision to exports is a likely reduction in the US crush estimate. Huge Chinese interest for US soy has helped offset the bearishness of a disappointing US soy crush pace, said Cekander.

 

The US soy crush pace for September to December was disappointing - down 69.5 million bushels from last year, primarily reflecting the large decline in US domestic soymeal disappearance, said Cekander. This is largely due to reduced hog and broiler numbers, with the increased supply of distillers dried grains also displacing soymeal in feed rations, Cekander said.

 

USDA could potentially lower its estimate of US soy crush by 30 million to 40 million bushels from their current estimate of 1.685 billion bushels, he added.