The Soybean Market’s Ongoing Saga

October 23, 2018 01:14 PM
Trade uncertainty, large yields and excessive stocks create extra risk as farmers market their 2018 and 2019 crops.

For 2018, soybean production is forecast to reach a record 4.69 billion bu., which is 6% above last year’s record production. Farmers in nine of the 18 top-producing soybean states will see record yields this fall, per USDA’s October Crop Production report.

Not only is a huge crop being harvested, but the U.S. has a lot left over from previous years. As of September, U.S. soybean stocks hit 438 million bu. While we’ve seen higher soybean stocks in the U.S., the current stocks are 45% above last year.

This excessive supply is largely due to the absence of the U.S.’s biggest soybean buyer—China. Until this year, around 60% of U.S. soybean exports headed to China. But the trade war from China has shut down this significant customer.

Trade uncertainty, large yields and excessive stocks create extra risk as farmers market their 2018 and 2019 crops.

“Most every producer I’ve talk to this summer and fall plans to store this crop and wait for prices to get better,” says Stephen Nicholson, Rabobank senior analyst for grains and oilseeds. “First, they need to consider their storage costs.”

Commercial storage costs will likely become expensive this fall and winter, Nicholson predicts. “In the heart of the Corn Belt, space will be at a premium.”

While on-farm storage is cheaper, farmers still need to understand that cost. Nicholson suggests weighing your options: If you take that money now by selling grain, what can you get for it versus spending it to store grain?

Also, realistically assess what price movement you think can occur in the soybean market.

“Technically, the markets haven’t shown me any signs they are headed higher, so I expect them to trade in a range for the foreseeable future,” Nicholson says. “Every day you hold onto that crop, there will be more grain coming to market and you perpetuate the probability of beans being very cheap.”

Granted, low prices tend to buy demand. Plus, China will still need to buy soybeans eventually.

“U.S. soybeans will somehow, someway find their ways to China,” Nicholson says. “That may possibly be through Canada because they have export facilities. But it won’t be a very efficient supply chain. If your supply chain just got longer, it’s going to be more expensive and put more downward pressure on basis values to offset higher costs of the supply chain.”

Long-Term Outlook For Soybeans

Rabobank’s 2018 Baseline Outlook, which looks out over the next decade, forecasts lower acres in the U.S., as a result of the Chinese tariff on U.S. exports. This should leave acres in the mid-80 million-acre range, which is the lowest since 2014.

As a result, U.S. farmgate soybean prices are predicted to stay in a $1 range during the next decade—between $8 and $9.

Soybean Price Forecast
Source: Rabobank

“I’m more worried about the next couple years of prices than the last few,” Nicholson says. “Farmers with costs in line will fare OK, but those who don’t have costs under control will really struggle.”

Profitable price opportunities are short, Nicholson says. “If you see an opportunity, you have to take advantage of it.”


Read More: Huge Crops Will Likely Keep Prices in Tight Range


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Spell Check

Ollie Tom
Kaukauna, WI
10/23/2018 06:26 PM

  I only know a a few “mega farms” that can afford to store their beans and get by without the income from their crops - smaller farmers get screwed again. This is why there are so many suicides by small farmers. Thanks Mister “trade wars are easy to win”! The sad thing here is these guys will probably keep voting against their own interests.

Montfort, WI
10/24/2018 04:39 AM

  That is so true. Storing soybeans isn't an option when u need cash flow and operating loans are maxed out. Some diehard Trump supporters will still vote for him, believing his bs about being a great Patriot. They just won't comment on this forum any more because they now realize that there is no resolution to the trade wars on the horizon. When was the last time we had export inspections with China as a destination? This fiasco will drag everyone down Trump's rabbit hole and next year everyone will plant more corn and destroy that market as well. Neo cons are just dumb enough to vote for him anyway. Don't be surprised if the midterm elections turn into a referendum on Trump. China knows this so don't expect them to come to the bargaining table anytime soon.

east cental , MN
10/24/2018 11:46 AM

  okay trump supporters if his trade policy does not work and say we have another farm crisis as in the early 80's, how will our industry feel about his stand then?


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