KANSAS CITY, MISSOURI, U.S. — With potential record soybean crops growing in the United States and forecast for Argentina and Brazil, and a U.S.-China trade dispute likely to spill into next year, it’s hard to be bullish on beans, veteran crop analysts told Milling & Baking News, a sister publication of World Grain. The good news, the analysts said, is that China, by necessity, may return to large-scale purchases of U.S. soybeans sometime in the autumn.
The U.S. soybean crop has received above-average condition ratings throughout the growing season to date and was progressing ahead of the average pace. Despite a smaller planted area than in 2017, crop conditions suggested farmers may harvest a record crop this year.
“Our estimate (for average yield) is just more than 51 bus per acre,” said Paul Meyers, vice-president of commodity analysis with Foresight Commodity Services Inc.
Meyers said even if yield comes is slightly lower than that (he noted the average trade forecast was around 49.5 bushels per acre), he would expect farmers to harvest a record crop this fall. The U.S. Department of Agriculture’s trendline forecast for average soybean yield as published in July was 48.5 bushels per acre.
“(A record crop) is a possibility,” said Brian Harris, executive director of Global Risk Management Corp. “If it’s not a record, it’s going to be really close, the way things are shaping up right now.”
The world 2018-19 soybean crop was forecast to reach a record as well, partly because of expectations Argentina’s production will rebound after the drought that sharply lowered its 2017-18 soybean outturn. The International Grains Council, in its July 26 Grain Market Report, raised its 2018-19 world soybean production forecast to 359 million tonnes, up 1 million tonnes from its early-July forecast. That projection included year-over-year increases for Argentina (54 million tonnes, up 44% from a 2017-18 estimate of 37.5 million tonnes) and Brazil (120.5 million tonnes, a 1% increase from 119 million tonnes as estimated for 2017-18).
“By the time we get to next March, we could be awash in beans, but, you’ve got a long way between now and then,” Harris said.
Soybean futures declined more than $2 a bushel from late May to mid-July, trading to the lowest levels in nearly a decade. Forecasts for record U.S. and world crops exerted weight, but the escalating tariff war between China and the United States was said to have had an even greater impact. China canceled some purchases from the United States and scuttled future buys, which may have totaled more than 30 million tonnes this year. When U.S. soybean prices tumbled in response, some European and other countries took advantage of the lower U.S. pricing to increase the volume of their purchases from the United States. Those purchases were welcome but paled in comparison with the lost sales to China.
Meyers attributed two-thirds of the $2 decline in soybean futures to the trade dispute, and a third to the favorable weather.
“Prices would have come down given the ratings and how well the crop was developing, but there’s no way they would have gone as low as $8.25 a bushel without China,” Meyers said.
The principal impetus to the recent bounce in soybean futures that began in mid-July were crop condition ratings declining from earlier stellar levels.
“We saw the weather outlook change about two weeks ago into a hot-and-dry pattern for a large portion of the Midwest,” Harris said. “I think that put some risk premium back into prices, and rightfully so at that point, because back then, we were only at about 10% pod setting. But, I think we’re far enough along now where that dog is kind of rolling over a little bit.”
On Aug. 5, the USDA rated the soybean crop at 67% good to excellent compared with 75% as the crop’s initial rating on June 3.
“The ratings have come off a little bit,” Meyers agreed. “And because August is the main month for determining soybean yields, the market may have built in a little bit of a weather premium, at least until we get through August and the early part of September.”
Meyers added, “I also think the slide (in futures) was probably overdone by the middle of July. Additionally, the weekly soybean export inspections and even sales have been a little better than what the market was expecting.”
Another contributor to soybean futures’ recent bounce from contract lows may be found in higher-than-expected estimates of U.S. soybean crushings, indicating the United States is absorbing more soybeans for domestic use than anticipated.
Technical trading, too, has had effects on prices as funds managed massive long positions held in late May and early June.
“(Funds) just got hammered when markets started to go down,” Meyers said, “and liquidated all their positions and went net short, and I think maybe they’re buying some of that back now.”
But the analysts said crop weather and China’s levies on U.S. soybeans remain the primary drivers of soybean futures. Since the tariffs went into effect July 6, China has attempted workarounds, but the country’s usage from previous years and “sloppy” crush margins this year suggested the country probably will have to return to the United States for supply.
“China has said that they can replace and change their feed rations to basically eliminate the need for about 10 million tonnes of soybeans,” Harris said. “If you really look at the math, though, it sure looks like they’re going to have to come back to the United States for somewhere in the neighborhood of 8 million to 12 million tonnes.”
Other analysts have suggested that figure may reach 20 million tonnes, despite the tariffs.
“If they’re going to buy 20 million tonnes, and they’re going to shift back to buying from South America in February-March, they’re going to probably have to start buying here in September-October,” Meyers said. “I think they’re going to make it as painful for the U.S. farmers as they can, so they’re going to delay as much as possible. My most-likely scenario is that they buy some U.S. soybeans starting in the middle part of the harvest. But I think they’re going to make the United States sweat it out for a while.”