Following USDA Reports Attention Turns To China Trade

February 8, 2019 12:53 PM

Following the longest shutdown in government history, USDA released a slew of reports on Friday including the World Agriculture Supply and Demand Estimate and the 2018 crop production report. Many analysts anticipated extreme volatility as a result of the reports, but now that the numbers are out, they say the market attention is back to China trade.

“We're going immediately right back to U.S.-China trade I think,” Sam Hudson of Cornbelt Marketing told U.S. Farm Report host Tyne Morgan. “I think today can be basically taken as neutral, probably even more neutral for beans than it even was for corn.”

The world carryout for soybeans fell to 106.72 million metric tons, lower than the average trade guess of 112.67.

“So I think for now the market will probably stabilize,” he said. “If we get a little bit of a break here in the short term, I think you may see some buyers come in until we really figure out what the US-China final outcome is, and we're going to have a trade delegation going to Beijing next week.”

USDA economists did address China’s soybean demand slump in the report by trimming it by 3.5 million metric tons, and Hudson said that’s probably just the start.

“I think you have to assume [this is the beginning of USDA’s Chinese demand trims] at least with what we know today,” he said. “Keep in mind over the last three marketing years, and really going into this one, we've shipped them anywhere between 27 and 32 million metric tons. We've hit almost 30% of that number so far this year.”

According to Dan Huber of the Huber report, the soybean demand reduction in China is directly correlated with African swine fever.

“Actually when you look at the reduction in demand in China, a lot of it, I think can be directly attributed to the problems they’ve had in the hog industry this year,” he said. “They're saying 915,000 million head [were impacted], a lot of people think it could be significantly higher than that. So there's 2 to 3 million bushel of beans right there, just with what is known on less demand for soybean meal.”

It’s too early in the year to know what kind of range Chinese exports will land in, Huber said.

“We're gonna have to at least get through the first quarter of this year before we can see any more answers on that,” he added.

According to Hudson, even if China started purchasing soybeans in a significant amount, this factor will hang on the markets into 2020. 

“I don't know if we can ship it fast enough to get rid of all of it anyway,” he said. “So we're going to have this factor lingering into probably early 2020. Hopefully this will be a better change for the long term if we have a positive outcome.”

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