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We are 80% sold in 2017/18 old crop soybeans.
We are 20% sold in 2018/19 new crop soybeans.Post Your Soybeans Now!
Soybean prices continued to slide as seasonal pressures complemented ongoing trade pressures. Although the U.S. struck a deal with Mexico this week, the inability to get Canada on board with a revised NAFTA deal added additional pessimism to the complex. Before we get into the supply and demand factors impacting soybeans this week, let’s take a look at the performance of futures contracts this week.
As it’s now the end of the month, let’s take a look at how soybean prices performed in the past 30 days.
In the month of August, front-month soybean prices were a bit more than 8% lower than where July ended, and more than 11% below this time a year ago. Soybean prices were also about 75 cents/bushel lower than the 5-year average for the end of August.
Managed Money Turns a Bit Bullish
Hedge fund managers reduced their net short position on soybeans this week.
As of August 27, managed money held a net short position of -53,462 contracts, down -13,593 contracts on the week.
Tariff Relief…For Some
Last week, the USDA announced Trump’s plan to subsidize crops (and farmers) affected by heavy tariffs. Each crop and livestock farmer can receive up to a maximum of $125,000 in compensation. These payments and limits are completely separate from existing government programs like PLC and ARC.
However, to be eligible, “applicants must have an ownership interest in the commodity, be actively engaged in farming, and have an average adjusted gross income (AGI) for tax years 2014, 2015, and 2016 of less than $900,000.”
Specific to soybeans, the USDA is offering a subsidy of $1.65/bu on 50% of 2018 production.
GrainCents will continue to monitor how these subsidies will affect prices.
Trade Expectations With NAFTA
This week, the big news on the trade front wasn’t out of China.
It centered on North America. On Monday, the United States and China reached a tentative deal on trade that threatened Canada’s inclusion in free trade across the continent.
President Donald Trump threatened to exclude Canada from a new NAFTA deal if the nation failed to come to the table. The deal between the U.S. and Mexico was just a revision of key provisions in the existing NAFTA deal on the digital economy, agriculture, labor unions, and automobile manufacturing. The primary part of the deal — one that allows American companies to operate in both Canada and Mexico without tariffs or special levies — remained untouched.
The key provision that got the deal done, however, was a concession on Mexico’s part. There will now be a cap on the number of automobiles that can enter the U.S. from Mexico until tariffs of 25% kick in.
On Friday, leaked off-the-record comments spilled out of the White House. According to reports, President Trump said he is not willing to negotiate with Canada on any deal, making this a “take-it-or-leave-it” proposition.
Given that no deal was struck on Friday, expect some choppiness in the grain markets next week as traders attempt to make sense of cross-border flows in a world without tariff-proof trade between the U.S. and Canada.
Soybeans Crop Quality Update
The USDA reported the quality of the U.S. soybean crop last Monday, saying that just 66% was rated good-to-excellent (G/E).
That figure is one point higher than last week and the 5-year average. Going into Tuesday’s report, the soybeans quality rated G/E is usually 65%.
Soybean dropping leaves were reported at 7% last Monday, which is 1 point ahead of last year 3 points ahead of the 5-year average.
U.S. Soybean Exports Push Higher
On Thursday, the USDA reported old crop sales of 110,900 MT, a figure that was 27% lower than the previous week. The number was also off 39% from the four-week average.
Meanwhile, the agency said that new crop sales (2018/19) came in at 591,600 MT.
Exports tallied 973,100 MT for the week. That was a 55% increase from the previous week. Lower prices continue to provide bargains for buyers around the globe.
The top five destinations by volume for U.S. soybeans were Mexico (218,800 MT), the Netherlands (155,200 MT), Iran (139,600 MT), Egypt (91,300 MT), and Vietnam (76,800 MT).
We are now tracking 1.9 MMT behind the USDA’s latest forecast. Thus, with two weeks left in the 2017/18 crop year, actual exports need to average 954,000 MT each week to reach the target.
Ultimately, cumulative 2017/18 shipments plus outstanding sales are 3% below last year.
On the export front, markets are waiting for China to return to the United States in the weeks and months ahead as Brazilian supplies diminish amidst the planting of their 2018/19 crop.
Meanwhile, we’ve been seeing Argentina increase its buying.
Argentina has been importing soybeans from the US to help make up for the lost domestic product that gets processed into soymeal and soyoil. The USDA attache in the country just lowered its 2017/18 soybean production figure from 37 MMT to 36 MMT as they continue to assess the impact of drought earlier this year.
As a reminder, Argentina is the #1 exporter of both these products, as they’re expected to ship out nearly 30 MMT and 5.1 MMT respectively in the 2018/19 crop year.
Since China can’t buy enough soybeans that aren’t “Made in America” to feed their growing livestock industry, they must revert to buying a processed product, like soymeal, from the likes of Argentina.
Soybean Plantings to Fall Next Spring
Last week we noted that U.S. farmers are likely to switch from soybeans to corn in droves thanks to the ongoing trade spat between the United States and China. As we noted, we could see as much as a 5% decline in soybean acreage in favor of other crops like corn and winter wheat.
This week, we got some evidence that farmers are already heading in that direction. FarmFutures released its first acreage survey and we saw a noticeable decline in soybean planting intentions and uptick in other crops.
The survey said that farmers will trim about 2 million acres of soybeans — from 89.6 million to 87.5 million acres. That would be a 2.3% decline from last year.
The shift favors corn acres and wheat acres. The survey projected an increase in U.S. corn acreage by 1.7 million acres to 90.8 million. That would be about a 2% jump from this spring’s planting.
Meanwhile, FarmFutures pegged winter wheat acres at 33.6 million. That would be a 2.6% jump or 850,000 more acres than this year. Winter wheat is expected to increase by about 4%, while white wheat intentions dipped. Finally, spring wheat and durum wheat are expected to decline by 2.5%.
Canadian Soybeans Slide
According to Statistics Canada, soybean production in the Great White North is expected to slide this year by 9.2% to 7.0 MMT. The agency said that total acreage is set to fall by 13.7% to 6.3 million acres. Yields, however, are expected to increase by 2.1 bushels per acre.
We saw notable reductions in Ontario, where production is set to fall from 3.8 MMT in 2017 down to 3.7 MMT. Manitoba will see a 21.1% drop in production from 2.2 MMT in 2017 to 1.8 MMT in 2018.
In Saskatchewan, production will come in at 298,000 MT. That figure is 37.7% lower than what we saw in 2017. We put together a recap of Canadian soybean production, acreage, and yield expectations after the release of the August StatsCan report. You can read it, right here.
Where Soybeans Go From Here
The challenge right now centers on China and trade.
Though some farmers are factoring in the payout from the USDA when selling their beans, an end to the standoff between both nations may not immediately provide significant relief.
Back in July, the USDA cut 250 million bushels from its export figure due to concerns about falling Chinese demand. Should the U.S. suddenly gain back those exports, ending stocks would still sit at a robust 535 million bushels, which means that new demand is required to cut down on available stocks.
Moving forward, a downturn in next year’s acreage will hopefully pull the markets back to equilibrium. The reality is, the market has priced (or is doing so as we speak) the cost of the Chinese tax and a potentially record US bean crop. This means that, like corn, combining and filling contracts already in place should be the focus of the grain marketing plan.
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August 16 – U.S Grain Export Prices Hit 6-Year Low
August 13 – Soybeans Weekly GrainCents Digest
August 10 – August WASDE Shows Huge US Soybean Supply
August 5 – Soybeans Weekly GrainCents Digest