Strong headwinds are pressuring soybean prices and there’s only one scenario that will help them subside.
“It all hinges on China and whether they will start buying and in a big way,” says Ted Seifried of Zaner Ag Hedge Fund. “I think there’s a chance but it’s a long shot.”
Seifried, speaking to a packed house of farmers and grain and oilseed officials today at Ag Processing Inc.’s (AGP) annual meeting in Omaha, said more purchases by China is the only bright spot in an otherwise gloomy market outlook for the legume.
The logic goes something like this: China is compelled to offer an olive branch to the White House to end the trade war. As part of the compromise, Beijing buys massive amounts of additional agricultural commodities, including 15 million metric tons (mmt) of soybeans yet this marketing year.
The country of 1.4 billion people has purchased just 5 mmt of U.S. soybeans thus far compared to nearly 35 mmt in 2017-18.
“That would be the kind of game changer the market needs to make a lasting effect on soybean prices,” he says. “But the window for sales is closing fast.”
The play would be a wise one, Seifried says. By cashing in on ample purchases at a great price, China could protect itself should a U.S. trade deal fall through this spring.
“It’s an unlikely scenario, but about the only hope for a soybean market that is struggling to keep its footing.”
Soybean prices have marched slowly upward following a sharp selloff last June and July. But many factors are generating massive resistance to the upside.
“Some say we have a trade problem. I say we have a production problem,” Seifried says.
He points to increased U.S. and global soybean yields. When the partial government shutdown ends, the U.S. Department of Agriculture is expected to announce another record domestic soybean crop of nearly 4.6 billion bushels.
Increased production and sluggish Chinese demand have sent the U.S. stocks-to-use ratio through the roof, continuing a trend that began almost six years ago. Brazil is setting production records with a massive increase in China market share. If the White House continues to tussle with China, the country will continue filling the void, Seifried says.
Ted Seifried of Zaner Ag Hedge Fund visits with an attendee at Ag Processing Inc.’s annual meeting in Omaha on Friday. (Aaron Putze/Iowa Soybean Association)
Adding to the misery are burgeoning soybean supplies.
Seifried says U.S. soybean inventories are at historic levels and could move higher should China remain on the sidelines.
A national soybean yield of 53 bushels per acre combined with lackluster sales to China could balloon U.S. soybean stocks to more than one billion.
That’s an unprecedented amount, Seifried says, and reported weather and production issues in Brazil won’t be enough to move the market favorably for U.S. growers.
While prolonged heat and drought in South America’s key soybean growing areas has reduced expected production by 6-10 mmt, Argentina could be the spoiler. Despite above-average rainfall, the country’s production is expected to outpace last year’s crop.
As U.S. farmers prepare for a new growing season, the focus will quickly shift to planting intentions. Seifried says conventional wisdom once predicted a drastic reduction in soybean acres. That sentiment, however, has waned.
“You will likely see a reduction in the Dakotas but it gets sketchy from there,” he says.
A delayed fall harvest that limited the completion of field work combined with a slow start to the 2019 planting season could temper a big move to more corn acres. Rising input costs for nitrogen and potash also make any big moves away from soybeans unlikely.
“We’re searching for anything positive to move this market,” Seifried says. “But as is usually the case, it all comes back to China.”