Fundamentally Speaking

Cuts to U.S. Soybean Stocks

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product in relation to its price change.

Some goods are very inelastic, that is their prices do not change very much given changes in supply or demand and that can be the case where are limited substitutes for that good or few suppliers and this must certainly be the case for soybeans.

Last week's supply-demand report indicates that despite spot soybean prices advancing over $5.70 per bushel (67.5%) from the time the May 2020 WASDE was released to the January 2021 one, the USDA has increased demand in the 2020/21 season by 240 million bushels (mb) or 5.6% to a record 4.555 billion bushels (bb).

This has had a direct impact on ending stocks which at 140 mb as projected last week are down 265 mb from the initial WASDE report for this marketing year given back in May as production estimates from that point to now are actually 10 mb higher.

This is a 65.4% decline in the USDA's U.S. soybean carryout projection and that is the largest decline over the past 20 years at least and probably ever.

This graphic shows the percent change for U.S. soybean production and demand on the left-hand axis and the percent change in ending stocks on the right hand axis from the May to January WASDE reports.

Note that in other years where the USDA's soybean ending stock projections have fallen rather steeply this has been due to a crop shortfall such as last year's drop of 51% seen between the May 2019 and January 2020 WASDE reports that was linked to the 14.3% drop in output with 2003/04, 2007/08 and 2013/14 also showing large percent drops in the carryout projections based on falling production estimates.

Only the 2010/11 season seems to resemble this one as ending stocks were pared by 61.7% between May 2010 and January 2011 even though production was flat yet demand surged 6.1% higher even as March 2011 soybean futures pushed from $9.52 at the time of the May 2010 WASDE report to $14.15 by the time of the January 2011 WASDE in action eerily reminiscent of what's been seen this year.


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