A few weeks back I attended the USDA Agricultural Outlook Forum in Washington, DC., where the USDA released their agriculture commodity outlooks for 2015. There was a lot of anticipation from the markets leading up to the release as the USDA projections provided the first estimates of production, prices and exports for all the major agricultural commodities.
The main surprise was the market outlook for soybeans. The USDA estimates that in 2015 the U.S. will produce the second largest soybean crop ever (second to 2014). The impact on soybean prices could be significant: the projected average price is US$9.00 per bushel, down from US$10.20 per bushel in the last marketing year. To put this in context the last time soybean prices were below US$9.00 per bushel was nearly a decade ago.
Low demand and high supplies of soybeans is one of the main reasons the USDA outlook is so bearish on soybean prices. The favourite tool to capture the imbalance between supply and demand is the stock-to-use ratio. The higher the level of stocks compared to projected demand, the lower the price (see figure below). The 2015-16 resulting stocks-to-use ratio of 11.4 per cent will be the highest in nearly a decade.
When looking at the ratios for 2014 and 2015, the numbers seem to deviate from the trend of the past seven years. Are we starting to see a new price relationship emerge, or are these two years simply outliers? Only time will tell.
The USDA’s estimated price of US$9.00 per bushel does however conflict with other sources of information. The futures market over the 2015/16 crop year is currently trading in the US$9.40 to US$9.56 price range, which is on average US$0.50 per bushel higher than the USDA projection. Researchers at Kansas State University are forecasting an average price of US$9.50, in line with the futures market.
The impacts on Canadian agriculture are potentially significant. U.S. and Canadian prices tend to move in the same direction. Regardless of whether the USDA or the futures market prices for soybeans are correct, there will be downward price pressure across the board – not only on soybeans but also for different crops like canola or corn. Producers may want to take advantage of futures prices to hedge some of their risk for the upcoming crop given the different projections.
Desmond Sobool, Senior Agricultural Economist