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Argentina Soybean Stocks: Looking at the Big Picture

This month, USDA's production estimate for Argentina's 2017/18 soybean crop was reduced 7.0 million metric tons, with accompanying reductions in trade, crush, and stocks. However, USDA forecasts soybean carry-in stocks on April 1 to reach a record 18.4 million tons, which will limit the impact of the lower crop forecast. Ending stocks for March 31, 2019 are lowered 2.4 million tons to 13.5 million.

Dissenting opinions from USDA's estimate of Argentina's soybean stock have suggested the beginning stock estimate is overly optimistic. However, with final and reported data on trade and crush, and using publicly available production estimates, the balance sheet is left with little flexibility in adjusting stocks lower than the current level. While anecdotal evidence has suggested a higher domestic use or inflated trade numbers, which would lead to a lower stock estimate, these reports are unverifiable and have not been incorporated in USDA official estimates.

There also exist economic incentives for Argentine soybean stocks to grow. Past economic and agricultural policies in Argentina have culminated in rising soybean production and stock-building. Macroeconomic conditions such as high inflation, policy uncertainty, and an artificially strong peso had discouraged farmers from actively engaging in the global market. As a hedge in such an environment, tradeable commodities have been held on-farm, especially by small- and medium-sized growers. These dynamics provide support to USDA's estimate of Argentina soybean stocks, which are currently forecast at 34 percent of 2017/18 disappearance. In comparison, Brazilian stocks over the last 5 years have been relatively low, averaging 1.5 percent of disappearance with a current carry-over into 2018 of less than 1.0 percent.

For further analysis, the following soybean balance sheet groups all significant South American producers such as Paraguay, Uruguay, and Bolivia, as well as Brazil and Argentina, in aggregate. In the big picture, South American producer stocks average approximately 7 percent of distribution from 2009 to 2016, comparable to a 5 percent level in the United States. The gradual rise in total South American stocks as a percentage of disappearance between 2012 and 2016 supports the notion of stock building in Argentina.

In conclusion, this cumulative approach suggests that an excess of 10 million tons of soybeans could be stored in Argentina, which could cover crop losses in 2017/18, given similar levels of exports and processing of the previous year. Uncertainty remains in both the final harvest volume and available stocks in Argentina, as well as the price incentives needed for producers to sell given the ever-changing economic landscape.

OVERVIEW

Global oilseed production is forecast slightly lower this month at 575 million tons. Soybeans are down on smaller crops in Argentina and Uruguay more than offsetting gains in Brazil, Russia, and South Africa. Rapeseed production is up on a bigger crop in China offsetting the smaller crop in India. Cottonseed production estimates are up with a larger crop in Sudan, and sunflowerseed production estimates are raised as well. Soybean exports are down this month as reductions for the United States and Argentina outweigh larger shipments for Brazil. World ending stocks for soybeans are down this month, with lower stocks in Argentina and Brazil offsetting gains in the United States. The U.S. season-average farm price for soybeans is unchanged at $9.30 per bushel.

SOYBEAN PRICES

U.S. export bids in February, FOB Gulf, averaged $389/ton, up $14 from the previous month. In comparison, FOB Brazil Paranagua averaged $394/ton, up $10/ton from last month. FOB Argentina Up River averaged $383/ton, up $18 from last month. Prices in the United States have risen on growing concerns about the Argentine crop.

For the week ending March 1, U.S. 2017/18 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 27.7 million tons compared to 34.3 million a year ago. Total commitments are 48.0 million tons, compared to 52.9 million for the same period last year

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