Soybean Magic
Joe Victor, May 21st, 2009
Page 1
Allendale Inc is not surprised by recent CBOT floor trade discussion regarding the potential for 2008/09 old crop soybean stocks to approach 75-77 million bushels. Within the last month nearly daily discussion took place of the eroding Argentina soybean crop, but with its harvest more than 90% complete and present Buenos Aires Grain Exchange production estimate of 32.8 million tonnes, it appears as though soybean bulls have switched pastures from Argentina to the US.
Presently USDA is forecasting 2008/09 end stocks of 130 million bushels which compares to its month of April estimate of 165 million bushel and year ago May estimate of 145 million bushels.
Allendale Inc would like to explore the potential for USDA to drop old crop soybean end stocks below 100 million bushels, let alone down to a level of 75-77 million bushels. If history is a good teacher we may only have to venture back to just last year as an example of what tactics measures USDA may utilize in order to keep projected days of supply above the existing 16 which mirrors 2003-04 (see graph).
We can look back to the April 2008 WASDE to see just how quickly USDA was able to find an extra 77 million bushel of soybeans by reducing soybean residual use. Residual use may be defined as "reflects handling losses, on-farm extrusion of soybeans, and a statistical error term. Not only was USDA capable of discovering 77 million bushels of soybeans in its April WASDE to help offset the 55 million bushel of increased exports and 5 million bushels for crush, it went a step further in its July WASDE to post a negative 35 million bushel of soybean residual. USDA's reasoning was for the -35 million bushels was the June 1, 2008 quarterly soybean stocks indicated a below average residual.
