Soybeans Dip on China Reforms, Oversupply Forecast

April 11, 2016 12:00 AM

Analysts are blaming a dip in soybean prices on the impact of China’s decision to stop subsidizing its corn farmers, a likely increase in plantings by American farmers, and rising South American production.

Although soybean acres essentially held steady at 82.2 million acres in USDA’s March 31 Prospective Plantings report, that number could grow as farmers shift from corn to beans. A bumper soybean crop in South America also could add pressure to a market that had been boosted by speculative funds, according to analysts.

“Farmers should be concerned about soybean prices over the next growing season and longer term,” said Kevin McNew, president and commodity broker at Grain Hedge in Bozeman, Mt.

Not only is there already talk that American farmers could switch corn acres to soybeans this spring, making it likely that soybean acres will climb by summer, but USDA’s agricultural attaché also has predicted record corn and bean crops from South America in 2017, McNew explained.

But he also pointed out the new market environment created by China’s recent announcement regarding corn. “Longer term, the real threat to soybeans is the change in China’s corn policies,” McNew said.

That’s because two weeks ago China announced it was abandoning its 15-year policy of subsidizing farmers by stockpiling corn and would begin selling its massive state reserves of 250MMT of corn.

“The end result will be China’s farmers will flock in masses to produce the more profitable soybean crop. In the longer term, this will likely cause a reduction in China’s 82 MMT imports from the U.S. and South America,” McNew said.

Also predicting a corn to beans planting shift is analyst Andrew Shissler, partner at S&W Trading in Downers Grove, Ill.  “Crop rotations are going to move back to 50/50 in many cases,” he said. “Farmers are going to be reluctant to plant heavy in corn.”

He is even recommending that farmers who haven’t been following a 50/50 rotation between corn and beans start doing so.  “You don’t want to be on the wrong side of rotation with the market,” Shissler cautioned.  “There are many reasons to split your rotation. I just wouldn’t want to go all-corn anytime soon.”

Yet another uncertainty is whether “large pools of speculative money” will continue buying soybeans, said analyst Ted Seifried of Zaner Ag Hedge in Chicago. Speculative interest drove the soybean market to new highs, he noted, but “the big question is whether the funds will continue to buy or not.”

What can farmers do? Seifried’s advice is to sell old-crop soybeans for cash prices and to manage risk with the new crop by selling futures or buying puts.

Likewise, McNew recommended farmers should buy $9 puts for new-crop beans and sell $10 calls to get downside protection for about 18 cents. “If we do have a weather problem, it gives you an upside ceiling on the $10 call,” he explained.


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