Apr. 5 – Do Soybean Prices Have Any Room to the Upside?

Grain markets are mostly in the red this morning with front-month soybean prices continuing to hover around that $9 USD/bushel mark in Chicago.

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Grain markets are mostly in the red this morning with front-month soybean prices continuing to hover around that $9 USD/bushel mark in Chicago.

Futures prices have retreated a bit from their highs made earlier in the week thanks to lingering knowledge of just how much grain the USDA said is still available in the U.S. last Friday and no trade deal between the U.S. and China. On the latter, President Trump will be meeting with China’s Vice Premier Liu He today at the White Office after two days of talks in Washington between delegations. [1] A couple of main sticking points are that American companies can wholly own China-based businesses and China would have until 2025 to meet its commodity purchasing commitments. [2]

Staying in trade talks, there are more skeptics than ever for seeing the new NAFTA trade deal – USMCA – get ratified this year, let alone ever! Part of the reasoning behind this is that U.S. Democrats want to re-open negotiation on some areas while Canada is expecting steel tariffs to be removed. [3]

China’s Hogs Don’t Help Soybean Prices

While trade talks are ongoing between China and the U.S., back in the People’s Republic, the full effects the wide-sweeping African Swine Fever are starting to be realized. INTL FC Stone says that the size of the hog herd has been drastically understated, suggesting that at least 30% of animals have been lost. [4] From a pure animal numbers perspective, this 30% would be the equivalent of all the hogs fed in Brazil, Mexico, Canada, and the United States combined!

Ultimately, the reduced herd size means roughly a 22 MMT reduction in soybean demand. While China has committed to potentially buying more American soybeans in a trade war compromise, there is much speculation that these beans could just end up in reserve silos and slowly be sold back into the market sometime next year. This inherently implies that demand for soybeans might be soft, even with a trade deal, and thus, soybean prices might not benefit as much as one has been hoping for.

Sidenote: U.S. soybean exports through Week 30 are still tracking nearly 30% behind last year’s pace. Yesterday’s sales report from the USDA though was relatively positive thanks to China, with 1.971 MMT sold, above the top-end of estimates.

More Bearishness to Soybean Prices

Last Friday’s Prospective Planting report suggested that we’re going see 84.62 million acres of soybeans planted this spring. In heavy swing states though like North Dakota and Minnesota, the U.S. Wheat Associates says that soybeans might turn out to be the more attractive option over hard red spring wheat for two reasons. [5] First, the domestic market for soybeans have been very strong and second, wet fields will mean most farmers will miss the ideal window to seed some hard red spring wheat. For the latter point, we know a heavy storm system is expected to dump a lot of rain next week through the western Cornbelt, including most of Nebraska and southern parts of South Dakota.

Staying with some bearish facts, Buenos Aires Grains Exchange in Argentina recently raised its estimate of the soybean harvest there to 55 MMT. Their report yesterday suggested that yields in the central Pampas farm belt were well above the norm, averaging nearly 64 bushels per acre!

Separately, Informa Economics bumped their estimate of the Argentina corn crop by 1MMT to now sit at 46.5 MMT. Informa also increased Brazil’s corn harvest by 500,000 MT to 94.5 MMT. Comparably, the USDA forecast for corn harvests in Brazil and Argentina back in the March 2019 WASDE report was for 94.5 and 46 MMT respectively.

That said, there are some analysts who are already getting a bit bearish on corn prices with respect to next Tuesday’s April WASDE report. [6] More specifically, between the higher inventories shared with us last Friday by the USDA and the combined, expected slowdown in exports and ethanol production, there’s a weaker tinge to the market. However, keep in mind that speculators are sitting on a near-record short position, providing some fuel for a short-covering rally if there is a bullish surprise.

What’s Going on With Pulses?

While there are some conflicting statements about Canadian pea exports to China, pulse crop organizations are saying that shipments are still flowing. [7] The USDA is forecasting that China will import 2.1 MMT of peas this year, up about 10% from the 2017/18 crop year. The main driver for the expansion in demand has been for the feed sector as peas have become more affordable since India put heavy import duties on peas. Simply put, livestock producers in China have been, generally speaking, happy to snap up Canadian peas while India tries to figure out its trade policies.

On that note, I’ve said many times that it’s unlikely that India will relax its import taxes on pulses unless there’s a production issue in the country. This winter, during the rabi crop growing season, we say well below-average precipitation across some of the major growing regions in India for pulses. Case in point, a study from February suggested that at least 50% of the country is already facing drought, with at least 16% of the nation in the “exceptional” or “extreme” category. [8]

On that note, Canadian pea exports are tracking nearly 11% higher year-over-year through Week 35 of the 2018/19 crop year, but well below the pace set in 2016/17 or 2015/16. As mentioned, China has made up for the bulk of these pea exports but we know that countries in the Black Sea are becoming a go-to option in July and August as their harvest starts earlier than North America’s.

Coming back to the weather, there’s been a suggestion by the world’s forecasters that the current “weak” El Nino conditions could persist for another 2 months. [9] For India, the monsoon seasons starts in June and lasts until September and anything but a full amount of precipitation might not be enough to help produce not only a kharif crop, but also a rabi crop next winter. Should those rains not materialize, and the production of pulses in India suffers, I’m pretty confident that you’ll see import tariffs on peas, lentils, and chickpeas relaxed.

Have a great weekend!

To growth,

Brennan Turner

CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

Due to travel this morning, there are no futures prices in today’s FarmLead Breakfast Brief but you can find them all here.

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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