Soybean Content Exchange

Despite the fact China has been largely absent from the U.S. soybean market, soybean exports have been fairly decent recently, but that isn’t expected to last. The fact trade talks between the two countries have broken down again could mean China will remain out of the U.S. market much longer, causing more angst among American producers.

“Exports of soybeans have been surprisingly decent from other countries, but that market is going to get saturated fairly quickly,” said Randy Martinson, president of Martinson Ag Risk Management, Fargo, N.D. “We’ve been selling a little in the European Union and some into Mexico and Middle Eastern countries. It’s been spread out over a lot of different areas.

“But now, with the escalation of the trade war with China, it’s very likely that we will not see them come back into the U.S. market in 2019, and possibly not even in 2020, until either we start making a little more concession toward their side of things, or we see a leadership change in the U.S., which is what it seems to be China is looking for – a leadership change,” he added.

After trade negotiations between the U.S. and China broke down in June, the two sides decided to re-engage in discussions the end of July, but now those talks have fizzled out as well after the two sides traded barbs. Unfortunately, the same disagreements remain, with no indication either government is willing to offer major concessions.

Martinson said China will purchase what they said they were going to buy during earlier negotiations and will take delivery of those, but there will be very little if any after that.

“Some of that business will spill into 2019, so there will be a little bit of business that will go to China, but there’s going to be nothing new to the extent that we’ve seen this year,” he said. “I think last year they bought a billion bushels of soybeans from us. This year, I think we’re somewhere close to 500 million. It’s likely in 2019 it will be quite a dramatic drop from there. You take 300-400 million bushels off of the export side of things and put them on ending stocks, it makes those stocks look a little bit tougher. That’s kind of the scenario that’s playing out in beans.

“We’ve seen a huge decrease in our demand and it does not look like that’s going to be taken care of anytime soon,” he added. “We’ve got a lot of other buyers with all these other small countries, but they’re not going to equal the weight of China.”

With China out of the market it leaves the soybean market over-saturated with product, according to Martinson. However, with a projected decrease in U.S. soybean production, it’s going to make up for some of it, though not enough though to really make the soybean market a bullish scenario.

“It could make it to a neutral or friendly scenario, but it’s not going to make it a bullish scenario,” he said.

This year’s soybean crop is a little worse off than what is taking place with corn as far as crop development stages and production, he noted, adding that the beans just haven’t been able to take the rain or the wet conditions.

“Now that things have warmed up they just seem to be a little bit further behind than what we’re seeing with corn,” he said.

As far as the production side, soybeans appear to be a little more challenged than corn.

“Of course early frost could still hurt them, but they go along with the sun and I think that’s part of the issue that we’re seeing is that with these cooler temperatures – they have slowed down the crop development stages for soybeans more so than for corn,” he said. “I think there’s a little bit more on that side that we need to be worried about from what I’m hearing all the way across the Corn Belt. It doesn’t matter if you’re in the eastern part of the Corn Belt or the western part or in the Northern Plains, everybody’s soybeans are very short and yield potential is starting to decrease because of that.”

Martinson pointed out that South America has a good soybean crop and is being a bit more aggressive with their marketing, but they’re not looking at increasing their soybean acres for 2019 as much as what one would expect.

“With the idea that demand from China is going to switch over to South America, they’re not going to see a big increase in acres,” he said. “They will increase their acres 3 percent more than they normally do mainly because of the infrastructure and the funds it takes to clear the land and they just don’t have it in place to see an increase in acres for the 2019-2020 year. So we might see a little more acreage start to get cleared in the following year and be brought into production, but right now I would expect that with South America and Brazil overall, they’ll see just a slightly bigger crop next year than they saw this year.

Martinson also pointed out that traders are starting to get into position for USDA’s big Aug. 12 crop reports. USDA re-surveyed 14 Midwestern states, including each of the key corn and soybean production states, after USDA’s June Acreage report gave traders higher than expected corn acres and lower than expected soybean acres. He said most traders expect the USDA report to have a reduction in corn acres and an increase in soybean acres.

“We don’t know where the acres are going to fall yet, we’ll see the same time we see the corn numbers when USDA releases its figures from the re-survey of farmers in the Aug. 12 report,” he said. “That will give this market direction, but any rally, any push above that $9 to the upper $9 levels as far as November is concerned, beans are definitely a sell, especially with the latest news on the export side of things with China stopping to buy.

“But with beans any rally is definitely going to be a sell at this point and hopefully that’s one of the crops we can move off the combine and not worry about,” he said. “Any rally beans are a sell, so I would be looking at making it a cash contract.

“Basis levels may improve a little bit, but long-term there’s not going to be a lot of hope because of the lack of export demand and also we’re seeing our crush numbers lag.

“Soybean crush is starting to see a little bit of a decrease of late as well. It shows that our meal and our oil isn’t as needed as it once was so that’s also adding to, or could add to an increase in stocks,” he continued. “It’s kind of a double whammy on the bearish side as far as beans are concerned.”

Local prices for soybeans are in that $7.50-$7.75 range, but basis for the most part is right around $1.20 under.

“For corn, our basis there has been fairly good, that’s anywhere from 20-30 cents under at end user places, but 40 cents under at elevators so definitely a lot more advantageous to lock basis levels in for corn,” he said. “For beans, I guess I’d be locking basis in and waiting for a little bit of recovery in futures and sell them if we can get close to that $8 or $8.25 cash area.”

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