Fundamentally Speaking

Stocks to Use Ratios vs. Avg Soy Prices

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

The soycomplex posted the largest losses in response to the release of the USDA's first take on the 2015/16 global and domestic supply-demand balance sheets.

Certainly seeing ending stocks at 500 million bushels, the largest in nine years is bearish as that is 13.4% of total estimated usage, also the highest since the 2006/07 season.

Meanwhile, the third consecutive year of record South American soybean production has boosted global soybean ending stocks to 96.22 million metric tons, a new all-time high in terms of tonnage and also as a percent of total world consumption with the ratio at 31.6%.

Similar to what we did with corn, this graphic shows the world and U.S. soybean stocks to use ratio for the past 25 years along with the average spot futures price for each marketing year using the daily average from September 1 to August 31 in dollars per bushel with this year's average going through May 13th.

As opposed to corn, it has been a while since the U.S. had a soybean stock to use ratio this high and as we have commented in prior posts, it appears that both soybean cash and futures prices trade at higher levels relative to specific stock to use ratios than in the past.

We see that the USDA is forecasting an average farm price of soybeans this coming year at $9.00 per bushel vs. $10.05 this year with a stocks-to-use ratio of 9.4% and $13.50 per bushel back in the 2013/14 season when the U.S. stock to use ratio was an all-time low of 2.6%.

As a check we ran a regression model forecasting futures prices based on the U.S. and global stock to use ratios that explains 52% of the variability in soybean futures prices is forecasting an average futures price of $9.67 per bushel.

That seems high for the average soybean basis over the past 25 years has been -$0.50 per bushel implying an average soybean price of $8.50 per bushel based on the projected USDA 2015/16 cash price projection so it will be interesting to see how values trade going forward.

(KA)

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]

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