Despite all of the rumors surrounding the on again, off again trade meeting of President Donald Trump and Chinese President Xi Jinping, new crop soybean contracts broke $9.50 Wednesday. Are they overvalued? According to AgriTalk host Chip Flory most analysts say they are, including Dr. Frayne Olson, professor of agribusiness and applied economics at North Dakota State University.
“When I try and do the numbers backwards and say, well, if you look at the November contract, what is the implication for planted acreage? What are the implications for U.S. production, I can't quite get the numbers to work,” he told Flory on AgriTalk. “I think what's happening, my opinion again, is that we have some optimism built in. I think there's a little bit of a risk premium that's built into this this market because of not only some of the conditions weather-wise in Brazil and, you know, most expectations are that Brazilian crop is getting smaller. But then also I think there's expectations that we're looking positive with a trade deal.”
He added there’s a phycological battle going on. Despite the possibility for a solid trade deal with China, Olson said the damage has already been done.
“We've seen a massive shift in basis levels again, that's all because of the transportation issues. About 75% of the beans grown in North Dakota get shipped to the PNW ports, about 98% of those get on a boat and ended up in China,” he explained. “So, we were and still are literally on the front lines of the soybean trade issues.”
While he does believe China will start buying U.S. soybeans again, he predicts they won’t ever buy at the levels they have in the past.
“In my view, there's already been a fundamental shift and we're trying to figure out what this new path of the soybean market is going to look like,” he said. “I do think also how that path plays out will be heavily impacted by these trade negotiations, and if there's some kind of requirement that the Chinese purchase U.S. soybeans or whether the Chinese are given flexibility to purchase from who they want to. There's still a lot of moving parts.”
U.S. Trade Representative Robert Lighthizer is in Beijing this week for trade talks. While White House officials previously indicated the two presidents would not meet prior to their March 1 trade deadline, on Wednesday a USDA official said the two will meet at some point in March.