Right now there a so many questions and too few answers. With the government shutdown, there’s little for traders to go on from the USDA. There are no trade-aid payments. We’ve essentially lost the world’s top soybean customer, and Brazil is doing a good job of filling that gap. Traditionally, farmers will wait to market a lot of their soybeans until the start of the new year when prices are a little higher and they need funds for spring planting. But with prices low and so much uncertainty, is it time to store those soybeans for another day? Will China succeed and cut US soybean imports for the long term?
Government Shutdown Means Little Info From USDA
Bryce Knorr of Farm Futures wrote an article earlier this week arguing that soybeans need a helping hand. He’s spot on. The government shutdown means that there’s little information coming out of the USDA for traders to go on, and soybean markets seem to be on hold. It’s been a lot of “Buy the rumor, sell the fact” type trading recently, and the double whammy of the trade war and government shutdown is hitting farmers hard. China has said that they’d begin buying US soybeans, but with the USDA’s statistical offices shuttered, it’s hard to know what’s really going on.
What many traders are going on this week comes from the only faction of the USDA that actually is putting out reports. And that report is mixed. Export inspections from last week showed that China had finally shipped out a 2.5 million bushel shipment of soybeans. However, vessel-tracking revealed that the ship was re-routed to Hong Kong. So, we don’t know.
If traders don’t have much from the USDA to go on, they will have to figure it out themselves. Data on imports may or may not come out. We can look to Brazil’s stats. They did show a slowing down of shipments to China in December, but that’s pretty normal for this time. Supplies can be limited before new crop harvests.
What we do know is how much we’re missing our Chinese buyers. We’ve essentially lost the world’s largest soybean customer. In 2017 we shipped 735 million bushels of soybeans to China. In 2018 we shipped only 15 million bushels there, while exports from Brazil to China nearly doubled.
Brazil is a Big-Time Player
Todd Hubbs of Successful Farming says that US soybeans are facing a lot of headwinds. Brazil is one of them. The most recent USDA World Production Report estimated the size of the 2019 soybean crop for all the major producers in South America to be 7.02 billion bushels. And that estimate is probably low. Brazil had an excellent growing year, and their soybean harvest will begin at any time. Their portion of that total of the portion above could be 4.78 billion bushels, according to some outside observers- which would be 350 million bushels above what the USDA has forecast. They’re producing near record-level soybean crops just like we are.
Unless something drastically changes, they’re going to continue exporting their soybeans to China. As the South American soybeans become available on the market, US soybean exports will dissipate. That’s a typical pattern, but what happens with Brazilian soybeans matters for us, and we need to keep an eye on it.
How much will China import this marketing year?
Will the Chinese actually succeed in cutting US soybean imports for the long term? If they do, we’ll be facing an uphill battle. Not only will we be competing with Brazil’s record-breaking crop, but there are reports that African swine flu has also taken hold in Asia. That could cut demand. If we look to the USDA’s last estimate, these two factors alone could drop 2018 US exports by 85 million bushels or more.
That could make a market turnaround nearly impossible.
However, a market turnaround could be possible if growers cut soybean seedlings like the USDA had forecast in their initial statistical outlook for 2019. If the government opens back up, those estimates will be updated in February at the USDA’s annual conference.
2019 Yield Estimates
DTN Analyst Joel Karlin wrote a piece examining prospective US soybean yields for 2019. The USDA was slated to issue its final crop production report on January 11. Less than ideal conditions during the second half of harvest may result in lower yield reports. The 52.1 bushel per acre (bpa) figure from November and may fall below the previous record of 52.0 bpa set two years ago.
Since 2014 US soybean yields have been strong. All five years since then have come in above the 20 to 30 year trends. Record yields have been seen four out of the past five seasons.
Even including the devastating drought year of 2012, yields over the past ten years have risen at an annual rate of 1.17 bushels per acre, well above the 20-year trend of a 0.72 bpa per year increase, 0.53 bpa for the 30-year trend and 0.45 bpa for the USDA Ag Outlook projections.
If one were to extrapolate the 2019 yield from the 10-year trend, a figure of 52.6 bpa would be expected vs. 50.4 bpa for the 20-year and 48.9 bpa for the 30-year trend.
A trend of the 1998-2018 USDA Ag Outlook soybean yield estimates implies a 47.6 bpa yield estimate but with the past three years at 46.7, 48.0 and 48.5 we feel a figure close to 50.0 bpa will be issued by the USDA this coming February.
Should We Wrap Up Sales and Wait This Out?
Karlin says that what’s happening with soybeans right now is similar to corn. A lot of 2018 soybeans haven’t been marketed. The wet fall in the Midwest left a little more storage space than would normally be expected, and the harvest was drawn out. There weren’t a lot of forced sales, and prices have been low. China has promised to buy soybeans. And soybean farmers were supposed to get that second installment of trade aid payments. So they’re waiting, in hopes that prices will increase. If you can’t get the higher prices, it might be time to store those beans and save the sales for another day.