Commodity Price Forecast - Soybean: Forecasts Maintained As Deficits Spur Moderate Prices Increases - 02 OCT 2017


BMI Soybean Price Forecasts
Current 2017 2018 2019 2020 2021
Note: Front-month CBOT contract; na = not applicable. Source: Bloomberg, BMI. Last updated: September 27 2017.
USc/bushel, ave 964 985 1,020 1,035 1,045 1,045
Bloomberg Consensus Estimates na 974 975 1,013 1,045 1,041

BMI View: We have maintained our soybean forecasts out to 2021 , and expect prices to average moderately higher than spot levels in the coming years . The global soybean market will register small deficits as global demand growt h , led by China, remains steady. By contrast, global supply growth will slow due to reduced growth in plantings and yields .

Short-Term Outlook (three-to-six months)

Soybean prices will range trade over the coming weeks as a record US harvest progresses and market attention eventually turns to South American plantings. Risks of La Nina forming over H217 are limited for now, which will prevent prices from making a significant move higher. Technical indicators are also largely neutral at this stage. However, we believe a combination of weaker plantings and yields for the South American 2017/18 crop will eventually lead to prices breaking above current resistance around USc1,000/bushel.

Close To Resistance
Front-Month CBOT Soybean, USc/bushel (Daily Chart)
Sources: BMI, Bloomberg

Long-Term Outlook

We are maintaining our soybean forecasts out to 2021, with prices averaging USc1,020/bushel in 2018 and modestly higher in subsequent years. For the 2017/18 season, we have revised our US production forecasts higher, mainly due to record plantings and strong yields. However, we continue to expect Brazilian and Argentine production to decline due to reduced planting incentives and yields returning to trend-line values. This will result in a global market deficit in 2017/18 of 2.6mn tonnes, underpinning our view of slightly higher average prices in 2018. Beyond 2017/18, we expect the global market to record moderate deficits due to reduced growth in plantings and yields returning to trend-line averages. Global demand growth will remain steady, driven chiefly by Chinese import demand and expanding global livestock production. Our expectation for deficits contribute to our above-Bloomberg consensus price forecasts. Moreover, our forecasts are above prices implied by the current futures curve.

Modestly Higher Prices Over Coming Years
Front-Month CBOT Soybean (USc/bushel, monthly) & Average Annual Forecasts
Note: Horizontal lines represent BMI annual forecasts. Source: Bloomberg, BMI

Strong Supply Growth In 2017

We have revised up our US soybean production forecasts for 2017/18, as plantings reached a record high due to favourable prices compared to other crops, especially wheat. Combined with largely favourable weather during the growing season and minimal impact from Hurricanes Harvey and Irma, we are now anticipating production reaching 120mn tonnes. By contrast, we are less optimistic regarding 2017/18 production prospects in South America, where we are forecasting production to decline in Brazil and stagnate in Argentina. This will be due to a combination of Argentine farmers reducing soybean plantings in favour of corn, and the expectation of a return to trend-line yields in Brazil. We are also anticipating weaker production in Paraguay.

BMI Harvest Forecasts & Risks
Country 2016/17 ('000 tonnes) Risks 2017/18 ('000 tonnes) Risks
Source: BMI, USDA
US 120,000 Harvest Complete 115,200 Balanced
Brazil 99,000 Upside 105,000 Balanced
Argentina 56,925 Upside 58,064 Balanced
China 13,753 Harvest Complete 13,890 Balanced
India 11,220 Harvest Complete 11,332 Balanced
Paraguay 9,599 Upside 9,694 Balanced

Looking further ahead, we forecast relatively weak global production growth out to 2020/21 compared to previous years, mainly because the area dedicated to soybean in top producing countries is already near record highs and these countries are already extensive users of genetically modified seeds. Even with ongoing seed innovation, we believe long-term yield growth in the US will slow as some farmers eschew the latest seed varieties to reduce costs ( see ' Key Agribusiness Themes For 2017 ' , December 2 2016). Moreover, stabilising exchange rates over our forecast period and a soybean/corn ratio in corn's favour will reduce soybean planting incentives in South America. Finally, weather conditions have been exceptional in recent years and we anticipate more normalised weather conditions over the coming seasons.

Soybean Yield Growth Already Slowing
Select Countries - Decennial Soybean Yield Growth (%)
Notes: Columns represent average annual soybean yield growth for decade beginning with the stated year. No data available for Argentina and Brazil prior to late 1970s. Source: BMI, USDA

China To Lead Consumption Growth

Alongside slowing global production growth out to 2021, we project global demand growth to slow to around 2.8% in 2021 (from 4.5% in 2017) as prices rise. In 2018, we forecast US soybean consumption to grow moderately year-on-year due to increased demand for soymeal, a key feedstock for the livestock sector. However, soybean consumption growth will be relatively subdued as reductions to biodiesel blending will reduce demand growth for soy oil, the main feedstock. This is due mainly due reduced soybean oil production. By contrast, in 2018 we are forecasting a strong increase in soybean consumption for Brazil and Argentina as high cattle prices encourage cattle herd re-building in Brazil while favourable export policies encourage Argentine producers to increase cattle weights, both of which will increase soybean demand.

Minor Deficits Ahead
Global - Soybean Production Balance, mn tonnes (LHS) & Stocks-To-Use, % (RHS)
Sources: BMI, USDA

We continue to forecast China to show the strongest soybean consumption growth among major global consumers over our five-year forecast period to 2021, at 25% to 123mn tonnes, mainly due to long-term livestock production growth. However, this is much lower than the 46% growth recorded between 2010 and 2015. Elsewhere, consumption growth in Argentina and Brazil will outperform the US, due to more favourable livestock production growth prospects. Overall, we forecast the global stocks-to-use to fall to 15% in 2021, below the 28% expected in 2017 and the 20-year average of 23%.

China To Drive Consumption Growth
Selected Countries - Annual Soybean Consumption Growth (%)
e/f = BMI estimate/forecast. Source: BMI, USDA

Risks To Price Outlook

The risks to our average price forecasts remain weighted to the upside. Higher-than-expected palm oil prices would stimulate soybean prices as soybean oil is considered a substitute. Poor weather during the Southern Hemisphere summer months could also impact South American yields. On the downside, a severe depreciation in the Brazilian real would also force global prices lower as it would encourage Brazilian exports. Finally, increasing trade tensions between the US and several of its key trading partners (especially China and Mexico) could lead to increased import restrictions, domestic US gluts and ultimately lower benchmark CBOT prices.

BMI Soybean Price, Production Balance & Stocks Forecasts
2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Sources: BMI, USDA
Price, USc/bushel, ave 1,406 1,243 945 988 985 1,020 1,035 1,045 1,045
Production, mn tonnes 268 293 319 312 350 335 338 346 355
Consumption, mn tonnes 262 276 302 314 328 337 347 357 366
Stocks-to-Use, % 21.1 22.3 25.6 24.5 29.6 27.6 23.9 19.9 15.9
Production Balance, mn tonnes 5.3 17.0 17.0 -2.2 21.5 -2.6 -9.1 -10.7 -11.3