Regional Plantations - Maybank Research 2022-04-04: US Farmers Going Defensive, Preferring Soybean Over Corn

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Regional Plantations - US Farmers Going Defensive, Preferring Soybean Over Corn

High fertilizer cost appears to have induced US farmers to take a more defensive approach in this spring planting season by opting to plant more soybean compared to corn. US soybean/ soybean oil prices were down 2.7%/3.2% d-o-d on the day US$A’s prospective planting report was out while corn price rose 1.5% d-o-d.
News of unprecedented release of strategic US oil reserves by Biden admin, and China further releasing state soybean reserves also weighed on 3-month future CPO price last Friday (-2.4% d-o-d).
Our NEUTRAL sector view is unchanged. Preferred BUYs: KL Kepong, Ta Ann Holdings & Bumitama Agri (SGX:P8Z).

According to US$A’s Prospective Plantings report (based on surveys conducted of ~73,000 farmers) released on 31 March, US farmers intend to plant 91.0m acres (or 36.8m ha) of soybeans in 2022 (+4.3% y-o-y), which is 2.4% higher than market average estimates of 88.9m acres (per Bloomberg survey, which ranges from 86.0m to 92.2m acres).
As for corn, US farmers intend to plant lesser corn at 89.5m acres (or 36.2m ha; -4.1% y-o-y), lower than the market average estimates of 92.0m acres (per Bloomberg survey, which ranges from 90.0m to 93.5m acres). If this survey materializes, US farmers are set to plant more soybean than corn for just the third time in history, and it will also be a record planting of soybean in the USA.

Separately, US$A also published its stockpile report on 31 March. As at 1 March 2022, US soybeans stored totaled 1.931b bushels (+23.7% y-o-y); higher than trade’s expectations of 1.902b. As for US corn, stocks were 7.850b bushels (+2.0% y-o-y); slightly lower than trade’s expectation of 7.877b.
The combination of higher-than-expected soybean planting intentions and stockpile led to a decline in soybean and SBO prices on 31 March to US$16.18/bu (-2.7% d-o-d) and US$0.6994/lb (-3.2% d-o-d) respectively. Meanwhile, corn price also rose +1.5% d-o-d to US$7.48/bu.

Prior to this survey, the market was already anticipating soybean taking bigger market share than corn compared to a year ago. Not only did US$A’s prospective plantings report confirm those expectations, it exceeded them.
We believe the US farmers are choosing soybean over corn planting on cost (i.e. working capital) considerations (despite the more favourable Nov soybean/ Dec corn price ratio) given the significant jump in fertilizer prices.
Soybean is said to require just a quarter of the fertilizer compared to corn. As usual, US farmers will start their corn plantings in April, followed by soybean in May. If farmers miss the window to plant corn in April due to unfavourable weather, they may switch to soybean plantings in May. The final planting mix will be published on 30 June 2022 in US$A’s Acreage report. With La Nina forecasted to end by mid-year, a more normalized weather condition may just yield record crops.

Ong Chee Ting CA Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-04

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