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The German Bank in the report is analysing the trends in US markets in its own terms and contrasting the same with USDA estimates.

13 Oct 2012

LONDON (Commodity Online): Deutsche Bank in a report suggests that soybean crush in US still has upside relative to USDA estimates on soybean meal demand. Soybean oil demand may be higher as well.

The German Bank in the report is analysing the trends in US markets in its own terms and contrasting the same with USDA estimates.

“If we back out our assumption for biodiesel use, other domestic soybean oil demand falls a significant 4%, based on the USDA’s estimate. Though it has fallen by this magnitude before, it was due to the trans fat labelling requirement and the resultant lower soybean oil use in food applications. With no such shift in food trends currently, that reduction appears too high.” the Bank noted.

The Bank assumes higher domestic soybean oil demand than the USDA.

Of note, and supportive to soybean use in biodiesel, RIN values have dropped as idle biodiesel capacity comes back on-line in response to confirmation of an increase in the mandate to 1.28 billion gallons in 2013 from 1 billion gallons this year.

Additionally, the growing odds of passage of the tax extenders bill (which includes retroactive renewal of the USD1/gallon biodiesel tax credit) is also having an influence on RIN values as the likelihood of the mandate being met through biodiesel blending grows.

Taken together, Deutsche Bank projects corn ending stocks of 599 million bushels (modestly below the USDA’s 619), which equates to a historically low 5.4% stocks-to-use ratio (or 20 days of consumption). In soybeans, we project ending stocks of 120 million bushels, 10 million bushels below the USDA.
This translates into 4.1% stocks-to-use vs. the 10-year average of 8%, or 15 days of consumption. For soybean oil, we assume higher production on a higher assumed crush (needed to balance soybean meal) and higher domestic demand than the USDA.

“As a result, we derive soybean oil ending stocks of 1.15 billion pounds, leading to a 5.9% stocks-to-use, well below the 14% average. Our estimated soybean meal ending stocks of 280,000 short tons trails the USDA by 20,000, despite a higher import assumption.” the Bank added.

This week’s monthly USDA WASDE report showed US corn production fell versus last month albeit by less than market expectations.

One of the primary areas of uncertainty heading into the report was the level of the soybean yield. Expectations called for an increase from last month’s 35.3 bu/acre to 37.

However, the USDA surprised the market with an estimate of 37.8. Interestingly, the USDA left its pod count unchanged from last month, but increased the assumed average pod weight to historically high levels.

Turning to demand, we continue to believe the USDA is underestimating corn used for Feed & Residual demand, as well as domestic soybean meal use. The USDA left its estimate for corn for Feed & Residual use unchanged at 4.15 billion bushels. We had been assuming 4.4 billion, but have adjusted our assumption to 4.25 billion bushels, or 100 million bushels above the USDA.

Deutsche Bank now assumes a bigger pick-up in wheat feeding by the hog sector in 2Q13. However, we are still assuming production cuts of 5% cut in the broiler sector and 3-4% in the hog sector.

To date, data has not supported these assumptions, with broiler eggs set up vs. last year and sow slaughter still below the 10-year average. The real test will be whether we see a pick-up in liquidation in November, when losses are more firmly evident in producer P&L’s.


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