Power Hour: Soybeans Swing on China’s Coattails

March 24, 2014 07:00 AM
Power Hour: Soybeans Swing on China’s Coattails

Weather might have played a big part in the dramatic movement of soybeans this past week, but China assumed the leading role, experts tell the U.S. Farm Report Market Roundtable.

"It’s the uncertainty of what’s going to happen with the export sales that have been made to China," says Brian Basting, Advance Trading, Inc. "We’ve got a tremendous book for this time of year still on the books to China for ’13-’14 beans. Are those sales going to be canceled? Are they going to be rolled into ’14-’15? Are they eventually going to be shipped? It’s a great unknown, and the market’s trying to get its arms around that."

The biggest problem China faces is to reroute shipping contracts that have been sealed because they don’t want to take back any more than they have to, notes Gregg Hunt, Archer Financial Services.

"On the bean side, they basically didn’t realize what happened with this bird flu," he explains. "The live chicken market—which is about 20% of the market, mostly in the south of China—disappeared, and the hog prices went down the rat hole. Now they’re stuck in the crosshairs of losing a lot of money. So how much money do you want to lose? Right now, it’s better to get the heck out of the deals the best you can because if you take them back, you’re going to lose more."

At this point, that uncertainty is primarily an old-crop issue, Basting says.

"We’re looking at trying to figure out how we’re going to get through this last five months of the crop year with soybeans with a comfortable carryout," he notes. "I think it’s the market’s job. It may be a combination of cancellations to China and some imports of soybeans and soybean meal into the U.S. this summer. It’s a really volatile situation because the soybean carryout today with the rate of usage we’ve seen, both domestically with the crush and with the exports, cannot be sustained."

China will also influence the corn and wheat markets in the days ahead by building investments within Ukraine, where political unrest remains a wild card.

"They loaned Ukraine $3 billion, they’re getting paid back in corn, and that corn has been shipped out to China while this whole thing is happening here," Hunt explains. "I just don’t think (Russian President Vladimir) Putin’s going to make a play on eastern Ukraine, I don’t think that’s going to happen. I think this is going to be much like, ‘OK, the status quo’s what it is for the moment.’ I know there’s a planting season, the winter wheat is basically their crop, so that’s already in the ground. Now it’s the corn. We’ll just see. But it’s just going to keep a premium in until we see more facts."

While Ukraine’s ability to harvest its wheat is unknown at this time, it has been a major exporter in recent good crop years.

"They’ve got the port, they’ve got the capability to do it," Basting concludes. "You just don’t know politically what’s going to happen. At this point, all we do is watch it very closely. Any type of rally linked to concern about Ukraine, I think it’s a great opportunity for the producer to do some pricing."

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