Besides the La Niña-related drought impact, the Russia-Ukraine war is likely to spur the high global price volatility of soybean (SB), soybean meal (SBM) and soybean oil (SBO) and the soy crushing spread in 1H22. We expect the global SB price to reach its peak of $17-20/bushel in 1H22 (the prolonged Ukraine conflict) before weakening to $13-15/bushel in 2H22 (slackening Chinese demand and weaker La Niña intensity). With the highly volatile SB price and soy crushing spread, we expect only stagnant GM for soy crushers like TVO in light of the inability to fully pass on the incremental SB costs. Our HOLD rating stands on TVO for a 6% dividend yield.
USDA’s Mar report—still positive on lower US and SA stocks
In its Mar 9 World Agricultural Supply and Demand Estimates report, USDA revised down 2021/22 US SB stocks by 12% MoM (by 40m to 285m bushels) to reflect higher US exports (from 2.05bn to 2.09bn bushels) given that the US SB exports shipments are likely to benefit from their competitive prices and lower South American (SA) SB supply this season. The 2021/22 global SB stocks were revised down 3% MoM (to 90m tonnes) to factor in the reduced output in Brazil and Argentina caused by drought. For Brazil, USDA slashed its 2021/22 output by 5% (or by 7m to 127m tonnes) and its stocks by 6% (or by 1.35m to 21m tonnes) to factor in the severe drought in three major southern SB-producing states (Rio Grande do Sul, Parana and Mato Grosso do Sul).