Hope won’t pay bills, but it helps.
Good news for soybean growers was in short supply this summer and fall. But as harvest winds down at least a few glimmers of hope emerged. Don’t fall in love with the idea that the worst is over. Turning the corner on a bad market likely won’t come quickly, nor in time to help 2018 crop prices much.
That doesn’t mean you can’t make a profit, strange as it seems. Big carries in futures, Market Facilitation Program payments and sales already on the books could mean a profit for many producers. Growers who followed our recommendations to price 60% of production at an average July futures price of $10.36 could make $10 to $20 dollars an acre if yields hold up.
One uncertainty in this equation is the size of the crop. A wet harvest and other problems in places during the growing season could bring a reduction in yield form USDA when it updates its estimate Nov. 8. I’m not looking for much, but the equivalent of about six-tenths of an acre reduction seems in order, taking about 50 million bushels off the size of the crop. With export demand lagging, carryout might not go down that much and should still stay well north of a very burdensome 800 million bushels.
News that China’s President Xi and President Trump will talk trade at the G-20 summit at the end of the month was the first positive news on the tariff war since it began. But ending the dispute won’t be easy, because it involves more than soybeans. China’s global ambitions as an economic and military power are at the heart of the conflict. Farmers think bread and butter; the real issues are also about war and peace.
Both short- and long-term demand from China is also questioning markets. Immediate demand for soybeans should start easing in China a bit seasonally as arrivals won’t fatten hogs in time for Lunar New Year celebrations in early February. Processors there still have high levels of inventory stockpiled from the start of the trade dispute and face poor profit margins as the government tries to cut imports 11% by convincing hog producers to lower the percentage of protein in their feed, which is much higher than used in the U.S.
That dynamic would change, of course, if Brazil has a short crop. While there are some dry areas in both Brazil and Argentina, rains seem to be improving and forecasts look promising. Otherwise, the U.S. will continue to sell soybeans to other buyers shut out of the market.
The other promising note last week came from USDA, which issued long-term projections that included its first statistical guess for 2019 crop supply and demand. The government sees acreage falling 6.6 million acres, 5 million more than we found in our August survey, even though the ratio of soybean to corn new crop futures is right around its 2.32 to 1 average, not favoring either crop.
If farmers do cut acreage that much, and if China starts buying U.S. soybeans again with rising overall demand, ending stocks could be whittled down to 540 million bushels. That’s still a lot, but very likely would bring opportunities to hedge at profitable levels at some point during the growing season.