October 1, 2008


Analysts question USDA figures on soy stocks


USDA's announcement that soy stocks were much higher than expected has caught some market watchers by surprise.


Quarterly soy stocks in the fourth quarter of the 2007-08 marketing year were estimated at 205 million bushels as of Sept. 1, well above the average analysts' estimate of 144 million bushels and the 140 million bushel carry-out in the September supply-and-demand report.


"We have known for the past three quarters that 2007 production was underestimated, but the trade was surprised by the degree of the increase," said Dan Basse, president of AgResource Co. in Chicago.


The trade was expecting maybe a 60 million-bushel bump in 2007 production, but a 1/2 bushel-an-acre increase in yield and a 1.3 million jump in harvested acres have questioning the USDA's numbers, Basse added.


The 2007 soy production was revised to 2.68 billion bushels, up 90.6 million bushels from the previous estimate. Planted area was revised up 1.11 million acres to 64.7 million acres. Harvested area is revised up 1.32 million acres to 64.1 million acres. The 2007 yield, at 41.7 bushels per acre, is up 0.5 bushel from the previous estimate, the USDA data show.


The USDA's 205 million bushel stock estimate is 65 million greater than the September forecast. "That matches the 1983/84 marketing year for the largest adjustment upward between the September forecast and the subsequent final report, said Bill Nelson, grain analyst with Wachovia Securities in St. Louis. That year, the USDA went from 110 million to 175 million.


Mike Zuzolo of Risk Management Commodities Inc. was puzzled that the bulk of the increase in stocks was measured at off-farm storage facilities.


"Commercial elevators have been running out of supplies, so that goes against conventional wisdom that increased supplies were found in commercial hands, as cash and physical supplies have been running thin," Zuzolo said.


A couple of weeks ago, supply tightness made it very tough for end users to get their hands on old crop supplies.


The USDA's numbers do not jibe with the tight supply situation in early September, but it may show that a large demand sector has raised the minimum amount of supplies needed in the pipeline to keep supplies moving, Basse said.


Historically, ending stocks at 200 million bushels or higher was seen as a very comfortable level. However, the absence of early harvested supplies from the US added to the supply tightness.


The USDA reported soys stored on farms as of Sept 1 totaled 47 million bushels, and off-farm storage totaled 158 million bushels.


Allendale Inc. had the highest prereport estimate, at 172 million bushels but can't find justification for any number above that level, said Allendale's Joe Victor.


"You have to take this report with a grain of salt, as crush and export data were pretty well known, leaving the question of how did the USDA miss that many acres from last year," he said.


Price outlooks for the market have taken a bearish turn following the surprising stocks data. The report is seen as a near-term rally killer, as it presents diminished supply rationing in the 2008-09 marketing year.


That depends on the size of the 2008 crop, however, but it does take some pressure off the October USDA crop report to not reveal a drop in yields, said Basse.


Macroeconomic concerns will keep pressure on prices as well, but the November contract should find a good base support level near $10.50 a bushel, Basse added.


The US$10.60 price level is an area to watch, and a breach of that level will trigger technical liquidation, said Zuzolo. If the November contract settles or holds above that level, it is a sign that traders are not buying into the USDA numbers, but if it does not hold, it shows they are taking the numbers at face value, he said.


However, there is a great deal of uncertainty still surrounding 2008 soy yields, said Allendale's Victor.


The supply boost and price weakness are friendly to end users to cover needs, but not for South American producers, as they need incentives to buy acres heading toward their planting season, Victor said.


Victor sees good price support in the US$10.42 to US$10.45 area but stresses that view is predicated on production and the initial step into the demand phase for the 2008/09 marketing year.

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