July 8 – Soybean Prices Outlook for the Second Half of 2018

For this week’s Digest, we take a step back and examine the factors likely to influence soybean prices going forward into 2018.

Current Sales Position:

We are 80% sold in 2017/18 old crop soybeans.

We are 20% sold in 2018/19 new crop soybeans.

Post Your Soybeans Now!

We have to apologize for the tardiness of this week’s Digest – we had to re-review some data points over the weekend and update some charts. With this transparency in mind, and the first half of 2018 on the books, this week we wanted to take the opportunity to provide you with an update on our views on every factor we track in the grain markets. The month of July gives us a chance to reassess events happening in the market and provide you with a framework of our expectations for soybean prices through the balance of 2018.

Today, we’ll be discussing important market factors such as:

 – Macroeconomic Conditions

 – President Trump and Global Trade

 – Weather Premiums in the US

 – South American Exports

 – Robust Chinese Demand

Before we dive into each factor, let’s take a look at how soybean prices at the Chicago Board of Trade performed last week.

  • Sep ‘18: +1.6% or 14¢ to $8.832 USD / bushel
  • Nov ‘18: +1.6% or 14.4¢ to $8.944 USD / bushel
  • Jan ‘19: +2.5% or 22¢ to $9.11 USD / bushel
  • May ‘19: +2% or 17.6¢ to $9.196 USD/ bushel


This week, soybean prices found a little bit of support on bargain buying. But we’re very aware that this isn’t going to be enough to generate optimism in the market.

In June, the University of Illinois released its breakeven prices for farmers of soybeans. That figure – $10.05 – was clearly in range. But the massive selloff fueled by the ongoing trade spat between the U.S. and China (and other key partners) has pushed prices to levels we haven’t seen since 2015.

Soybean Prices 5 Year Trends

If soybean prices ever do get back to the $10.50 mark in the short term, it will require a lot of things to go right in the factors below. Let’s dig into our expectations for the second half of 2018.

Global Macroeconomic Conditions

The U.S. economy is humming, and it’s widely expected that the US Federal Reserve will raise interest rates two more times by the end of the year. The question – and it’s a loaded one – is how much trade tariffs will impact and hinder growth? On Friday, July 6th, the Trump administration hit China with tariffs on $34 billion in products. China hit back and said that America had started the largest trade war in history.

The entire situation defies logic. Basic economic theory is out the window right now, but it’s hard to argue that eight years of profound economic stimulus under the Obama administration (more like alchemy) was sound policy either.

Our advice? Let us take care of worrying about the big picture figures, and we’ll report back on any threat that presents itself.

Ultimately though, we remain cautious about what lies ahead.

Trump + Global Trade Negotiations

Back in April, we had put the odds of a trade dispute between the US and China at around 10%.

But that low-probability event has dropped in our laps, and we have to deal with the fallout. The longer that this trend persists, the more China will turn to other producers. A Purdue study showed that more farmers in Europe, Canada, and the Black Sea will move to produce more soybeans.  More specifically, we made the call almost a year ago that Russian soybean production was poised to break out and that China would be the greatest beneficiary.

While the U.S. has turned to protectionism, the rest of the world is trying to continue to pursue free trade. This is a period of significant change brought on by the U.S. administration that is hyper-focused on trade deficits. The problem is that each new trade deal between rivals is a step away from American markets.

Weather Premiums in the U.S.?

Earlier this week, we received another crop progress report that indicated a healthy and robust American soybean crop. The USDA said that 71% of the crop is rated good-to-excellent (G/E), well ahead of last year’s 64% during the same period.

Right now, trade chatter is overshadowing every major trend in the market. Barring an intense heat wave, it looks like we’re going to see another large American soybean crop this year. The silver lining is that U.S. soymeal and soy oil production will likely rise significantly as crushers take advantage of lower soybean prices. Look for the U.S. to carve into Argentina’s market share of these byproducts (especially to Europe) as supply shortages continue to rattle producers in the South American nation.

South American Soybean Export Trends

Brazilian soybeans will continue to be the commodity of choice for Chinese buyers. The nation will export roughly 73.5 MMT of soybeans around the globe this year, according to Agroconsult. That figure was released this past Thursday and was higher than the 72 MMT projected by the Brazilian government. The bulk of those beans will be heading to China.

On the day that China and the U.S. hit one another with tariffs, Brazilian soybean premiums hit a 14-year high at the same time that China canceled 432,000 MT of American soybeans.

Perhaps more interesting are South American import trends heading into the second half of the year. New reports indicate that Brazilian processors might import up to 1 MMT of American soybeans to meet demand, despite expectations of a record crop of 118.9 MT in 2018/10.

Importing a few beans would help alleviate rising freight costs in Brazil. The government’s decision to impose minimum freight prices aimed to stop an 11-day strike by truckers across the country in May. These rising costs have pushed Brazilian premiums even higher, making American beans an attractive buy.

This trend also comes at a time when Argentinian purchases of U.S. beans are at a 20-year high.

On that note, Argentina is now dealing the ramifications of a 2017/18 harvest of 37 MMT, a figure that was 37% lower than the previous year. Soybean yields and harvested area fell to their lowest levels since 2008/09. Four solid months of drought ended with a month of flooding in April.

Argentina is the world’s top exporter of soymeal feed and soy oil. The drought was so bad and dramatic for the processing industry that the nation’s economy fell into the red for the first time in more than a year.

To meet their processing demand, they indeed are importing soybeans from America but also fellow Mercosur nations like Chile and Paraguay.

While the 2018/19 growing season is underway in North America, Plant18 won’t start in Argentina and Brazil until late September / early October. With what appears to be intense demand for soybeans shifting exclusively to South America, the 2018/19 production estimates in Brazil and Argentina from the USDA might be low. For context, the USDA is forecasting a soybean harvest of 118 MMT in Brazil and 56 MMT in Argentina

Chinese Soybean Demand Continues to Grow

On June 26, The USDA said that protein demand out of China will remain robust. However, the nation is likely going to bolster its domestic soybean supplies to the tune of 15.2 MMT in 2018/19. That would be higher than the 14.2 MMT measured by the USDA for 2017/18.

The local Chinese variety of soybean, Huainan soybeans, have historically filled the demand for high protein soy-based products.

The USDA attaché pegged Chinese soybean imports at 100.5 MMT in 2018/19. That is a 3.5 MMT increase from 2017/18, but below a few projections that saw the numbers around 103 MMT.

Purdue University released a report in April that said Chinese demand for American soybeans could fall by 71% based on a 30% import tariff. They projected a 33% decline at a 10% tariff. The tariff today is at 25%, so this will likely be significant to US soybean exports.

Ultimately, China will be the main driver of the soybean market moving forward. Other nations will move to begin production of soybeans to capture potential premiums from Chinese buyers. More American farmers will likely switch to corn or other alternatives like sorghum, oats, flax, canola, rice, or cotton, depending on the area of the country that they farm.  

China’s Economy

As we recently noted, China’s economy is facing a string of threats similar to the perils of the U.S. economy back in 2007 and 2008. While we consider this factor to be “Noise” at the moment, it’s very important to keep an ear to the ground on the economy’s stability. The country is rife with debt, its housing market is in a bubble, and its Central Bank has fired many bullets to prevent a sharp economic downturn. With that in mind, the Shanghai Composite Index (the largest Chinese stock exchange) is down 20% so far in 2018.

Where do Soybean Prices Go From Here?

Moving forward, the trade war will dominate the markets. While we hope for cooperation and not escalation, we are going to have to pay close attention to South America as our second leading factor as a potential for price upside.

With Brazil’s soybean premiums at 14-month highs and Argentina hoping to recover from an abysmal 2017/18 harvest, we are looking for demand to return home due to the cost-effective nature of the market. That being said, the downside looking ahead is in the $8.50 range.

Soybean Oil Prices

The upside is that the U.S. could call off this trade war. It appears, however, that the Trump administration is digging in. And trade advisors are unrepentant about the consequences of their theories.

Ultimately though, we expect to continue to see volatility in the soybean markets. That being said, opportunities will arise in the form of short/quick-lived rallies. As such, moving forward, we’re going to stay diligent about selling opportunities and bid sheets. This is part of the risk management process that you need to be on top of as well: don’t just wait for the price you want, but understand why prices could rally or fade.

Have a great week!

– Brennan, Garrett, and Adrian




July 1 – Soybeans Weekly GrainCents Digest

June 29 – US Soybean Area Flat to 2017, Stocks Up 26%

June 29 – StatsCan Reports 6.32 Million Acres of Soybeans in 2018/19

June 24 – Soybeans Weekly GrainCents Digest

June 21 – Organics Still Competitive, Despite Trade Dispute

June 17 – Soybeans Weekly GrainCents Digest

June 12 – June WASDE Shows Lower Soybean Stocks and Higher Crush

June 10 -Soybeans Weekly GrainCents Digest

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.