Current Sales Position:
We are 80% sold in 2017/18 old crop soybeans.
We are 20% sold in 2018/19 new crop soybeans.
Soybean prices fell off a cliff Friday after a very bearish WASDE report raised the blood pressure of anyone sitting on soybeans. A massive slump came after the USDA projected a big uptick in U.S. stocks and expected Chinese demand slipped again. The slump came just days after a major head fake on rumors that China and the U.S. were working to end their trade spat.
Before we get into the factors impacting prices, let’s look at the weekly performance of futures contracts at the Chicago Board of Trade.
- Sep ‘18: -4.6% or 40.8¢ to $8.506 USD / bushel
- Nov ‘18: -4.5% or 40.6¢ to $8.616 USD / bushel
- Jan ‘19: -4.4% or 40.2¢ to $8.734 USD / bushel
- May ‘19: -3.9% or 36.2¢ to $8.964 USD/ bushel
Managed Money on the Move
Hedge funds maintained their large net short position this week. Money managers are now sitting at a net short position of 56,283 contracts.
A Bearish August WASDE Report
The U.S. is awash in soybeans, and it’s clear that the trade spat between the United States and China is having a significant impact on the domestic stocks figure.
This week’s WASDE report was brutal.
The USDA hiked 2018/19 ending stocks to 785 million bushels.
That hike was 205 million more bushels than what was projected in July.
The figure was well above the average estimate of 638 million bushels by analysts.
The agency did cut 2017/18 ending stocks from 465 million bushels to 430 million bushels. The USDA cited increased crush use as the reason for this decline.
The agency hiked U.S. soybean yields from 48.5 bpa to 51.6 bpa. Based on acreage expectations, that figure fueled an increase of 276 million more bushels in production. The USDA now expects that U.S. farmers will produce 4.586 billion bushels of soybeans. This figure is well ahead of the average of 4.407 billion bushels projected by analysts.
For more on the August WASDE, be sure to check out our recap for GrainCent soybean subscribers, right here.
Hamburg-based oilseeds analysts Oil World said Tuesday that China will likely return to the U.S. market in August.
With that said, China is getting creative in how it reduces its reliance on U.S. soybean exports – and primary sources of origin like Brazil. According to the Chinese Academy of Sciences, the nation might be able to reduce its soybean imports by 10 MMT in 2018/19.
The reason? The country may increase its usage of low-protein feed, hike imports of soymeal substitutes, and bolster its domestic soybean production.
The group said that mixing special additives to low-protein animal feed would not reduce its production or quality of pork or chicken. The Academy predicts that the country can reduce its annual soymeal demand by up to 7% a year (or 5 MMT) by using more low-protein feed with the additives.
This is in mind, earlier this week, China reported that soybean imports in the month of July topped 8 MMT. This was an 8% decrease from June and 20% lower than the July 2017’s soybean imports by the People’s Republic.
A few factors are at play here: China’s stocks of soybeans and meal are sitting at record highs at its ports. Demand for animal feed remains sluggish. And, of course, the 25% tariffs on U.S. beans are driving up prices of the crop in South America, where demand remains high.
China appears to suggest that they will undercut the USDA’s demand estimate for the country at 112.1 MMT.
Remember that the U.S. is in the middle of a trade war with China.
They might claim they are winning. They’ll likely do so by reducing their demand numbers and claiming that they will be able to secure alternative sources — even if they are wrong.
The USDA is less likely to bend to political pressure, so we’ll likely see their numbers a little higher than what is coming out of China. The USDA cut Chinese demand from its July estimate at 113.6 MMT.
China’s National Grain and Oil Information Centre says that the country will import 92.8 MMT for the marketing year. The USDA left its Chinese import figure unchanged at 95 MMT.
South American Update
The US WASDE report showed no changes to production in Argentina and Brazil. The agency projected that Argentine production will come in at 57 MMT. The USDA did hike beginning stocks for the country from 54.68 MMT to 55.28 MMT. That revision increased expected 2018/19 ending stocks for Argentina from 32.65 MMT to 34.1 MMT.
In Brazil, the agency pegged production at 120.5 MMT. A downtick in beginning stocks for 2018/19 led to a downturn in ending stocks from 24.65 MMT to 23.8 MMT.
U.S. Exports Jump on the Week
US old crop soybean sales came in at 421,800 MT. That was a nice rebound from the previous week.
New crop sales came in at 532,500 MT. The U.S. saw solid sales to Pakistan for the week
For the week, exports hit a little over 1 MMT. That figure was a 19% jump from the previous week. It also blew away the four-week average by 44%.
The top five destinations for U.S. beans were the Netherlands (165,300 MT), Spain (96,800 MT), Vietnam (75,800 MT), South Korea (72,500 MT), and China (67,200 MT).
We are now tracking 2.66 MMT behind the USDA’s updated forecast. Thus, with a few weeks left in the 2017/18 crop year, actual exports need to average 532,000 MT each week to reach the target.
Soybeans Crop Quality Update
The USDA reported the quality of the U.S. soybean crop on Monday. Analysts had expected that the agency would report that 69% of the crop was rated good-to-excellent. The agency instead reported that just 67% was rated G/E.
That figure is off 3 points from last week. However, it is still seven points higher than the 60% average over the last five years. Going into today’s report, the soybeans quality rated G/E is usually 66%.
August is a key month for U.S. soybean development and given that the U.S. weather forecasts are leaning to being a little drier and warmer, August is starting with a little bit of fear about the U.S. soybean crop. But the impact of the U.S./China trade war remains and without China as a customer for American soybeans, it is difficult to be bullish.
Anyone looking for the weather to offer a boost is going to be disappointed. While the next 15 days are looking drier than average conditions in Iowa, Minnesota and the Dakotas, the market doesn’t think this is too significant.
This is mainly because temperatures are not expected to cook the crop. Though there will be higher-than-normal temperatures across the Dakotas, expect some cooler conditions in southern Illinois.
Where Soybeans Prices Go From Here
Friday’s selloff signaled that a lot of people are simply done with soybean speculation and that optimism is now out the window. The ongoing trade battle between the U.S. and China has fueled a significant realignment of buyer-seller relationships.
China has made it clear that it intends to dig in. As the country continues to seek alternative sources of soybeans and substitutes, we anticipate that prices will remain lower for longer.
Going into Q4 2018, analysts at FocusEconomics are forecasting an average price for soybeans at $9.90 USD per bushel. Looking forward at the 2019/20 crop, the average price in Q4 2019 is currently estimated at $10.27 USD per bushel.
But we’ll need to see a steep decline in stocks to reach these levels.
Have a great week!
– Brennan, Garrett, and Adrian
August 10 – August WASDE Shows Huge US Soybean Supply
August 5 – Soybeans Weekly GrainCents Digest
July 29– Soybeans Weekly GrainCents Digest
July 22– Soybeans Weekly GrainCents Digest
July 15– Soybeans Weekly GrainCents Digest
July 12– July WASDE Shows Drop in U.S. Soybean Exports