Soybeans face long road End to tariffs wouldn t help 2018 exports much By Bryce Knorr, senior grain market analyst Forecasting grain prices is relatively easy in normal times. Most models assume the future will be like the past. When it isn t, weather usually is the blame. Bad weather cuts production, increasing prices. More recently, benign conditions six years in a row caused inevitable building of supplies, crushing prices lower. But predictions are hard, if not nearly impossible when assumptions about the future turn out to be anybody s guess. That s the dilemma for soybean growers. Yes, there s hope that talks at the end of the month between President Trump and President Xi of China will yield a breakthrough. But resolution of the dispute that includes China s punishing 25% tariffs on U.S. soybean imports isn t likely. Even if it happens, the soybean market may not be able to recover quickly. That s the good, bad and ugly of the market growers face headed into 2019. If Trump s trade agreements so far were a guide, the U.S. and China could just agree to disagree and move on. But deals with South Korea, Mexico and Canada were agreements made between neighbors and allies. China? Hardly. There s always a chance Trump and Xi could say they ve reached an agreement that boils down to some vague promises that permit the status quo to continue, allowing the countries to lift mutual tariffs. That s the good outcome from this dispute, and even it might not be that great initially. By the time the tariffs vanish, Brazil would be harvesting what appears to be a very large if not record crop. On average, 40% of the U.S. selling season s potential would be lost, limiting any rebound in sales as Brazil takes over control of shipments to China. Even if China buys U.S. soybeans, record world supplies would weigh on prices. Bad outcomes seem more likely. The U.S. and China are more than economic rivals. Like many conflicts in the past, the trade war is a proxy, in this case a U.S. attempt to block China s military, economic and foreign policy ambitions. Trump s strategic vision make it more likely he ll demand real change that Chinese leaders are less likely to give. USDA was slow to acknowledge the impact of the tariffs. The agency cut its original estimate of 2018 exports from 2.29 billion in May to 2.04 billion in July when the tariffs took hold. On Nov. 8 the agency took its forecast all the way down to 1.9 billion bushels. That could prove a little too bearish, but not by much. Even in a perfect world without tariffs, U.S. exports likely would have shown minimal growth due to rising production around the world and slowing Chinese economic growth. This is a warning to those who think sharply lower U.S. soybean acreage in 2019 is a panacea. It might produce good selling rallies. But historically the U.S. share of world exports depends on its share of world exportable supplies production plus leftover
inventories not used domestically. Smaller crops bring less export potential unless the competition suffers too. Fortunately, many growers forward priced beans on the spring rally. Big carries in futures, Market Facilitation Program payments and sales already on the books could mean a profit for many producers. Growers who followed our recommendations to price 60% of production at an average July futures price of $10.36 could make $10 to $20 dollars an acre if yields hold up. The market didn t get much of a rally on USDA s forecast for lower yields, and futures face a turning point in November. Ability to take out October highs could set the market on a bullish path. But conditions are favorable in South America so far. Without a threat or a surge in Chinese demand, the market historically has moved lower into February, and neither factor looks likely this year. Prices could rebound during the spring or summer on acreage or weather concerns. But growers holding soybeans unpriced should recognize the risks if the market never mounts much of a rally.
Soybean Supply & Demand Area 2017 2018 2018 Average No Tariff 2019 Planted 90,142 89,557 89,557 89,557 82,538 Harvested 89,522 88,348 88,348 88,348 81,643 Yield 49.3 52.1 52.1 52.1 50.4 Beginning stocks 302 438 438 438 940 Production 4,411 4,600 4,600 4,600 4,117 Imports 22 25 25 25 22 Supplies, total 4,734 5,063 5,066 5,064 5,079 Crushings 2,055 2,080 2,061 2,061 2,002 Exports 2,129 1,900 1,937 2,156 2,073 Seed 104 103 102 102 100 Residual 8 32 26 29 28 Use, total 4,296 4,115 4,126 4,347 4,203 Ending stocks 438 948 940 721 877 Ave. cash price $9.33 $8.60 $8.64 $8.96 $8.74 Ave. nearby fut. $9.24 $9.59 $9.35 (To-Date) $9.70 Stocks to use 10.2% 23.0% 22.8% 16.6% 20.9% Top Third of Price Range USDA $10.04 to $10.83 Bryce $10.40 to $11.22 $10.15 to $10.95
$1.20 $1.00 What's in an average? Difference between USDA and actual average cash soybean prices $1.07 $0.80 $0.60 $0.40 $0.32 $0.37 $0.20 $- $(0.20) $(0.01) 2015 2016 2017 2018* Source: USDA, MGEX *Sept-Nov estimate
450 400 350 300 250 200 150 100 50 0 MONTHLY BRAZIL SOYBEAN EXPORTS MILLION BUSHELS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 2015 2016 2017 2018 CHINA SHARE OF BRAZIL SOYBEAN EXPORTS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008 2010 2012 2014 2016 2018* *Through Nov. 2
LEADING SOYBEAN EXPORT COMMITMENTS YEAR TO DATE NOVEMBER 1, 2018 0THER, 24% PAKISTAN, 4% UNKNOWN, 28% CHINA, 4% EUROPEAN UNION, 11% MEXICO, 15% Weekly Export Inspections in million bushels For week of 11/01/18 Average Trade Guess This Week Last Year Rate Needed to Meet USDA Forecast Year-to- Date Total This Year Year-to- Date Total Last Year This Week Last Week WHEAT 12.0 14.5 12-20 11.2 22.5 329 421 CORN 49.4 27.5 27-39 18.0 47.4 390 219 SOYBEANS 45.2 48.9 33-47 91.6 39.7 315 546 Source: USDA, Reuters
Weekly Soybean Export Inspections Thousand Bushels 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 S O N D J F M A M J J A 2017-18 2018-19 5-Yr. Avg. Thailand, 5.8 SOYBEAN EXPORT INSPECTIONS WEEK ENDING NOV. 1, 2018 Million bushels Other, 19.1 Netherlands, 5.2 Argentina, 4.9 Mexico, 4.3 [CATEGORY NAME], [CATEGORY NAME], [VALUE] [VALUE]
1,000 MT Soymeal Export Commitments 14000000 12000000 10000000 8000000 6000000 4000000 2018 2019 2017 2018 5 Year Average 2000000 Weekly Export Sales (million bushels) AS OF WEEK ENDING 11/1/18 Wheat Corn Soybeans Old Crop Sales 24.3 27.6 14.3 New Crop Sales 0.0 0.0 0.1 Total Sales 24.3 27.6 14.4 Prior Week 21.4 15.5 14.6 Trade Estimates 16.5 29.5 20.2 Rate to reach USDA Forecast (Old Crop) 17.2 34.9 21.3 Export Shipments 12.1 53.3 41.7 Rate to reach USDA Forecast 23.6 47.4 35.6 Commitments % of USDA estimate (Old Crop) 63% 36% 38% 5-year average for this week 60% 37% 70% Shipments % of USDA est. 43% 17% 15% 5-year average for this week 42% 12% 22% Source: USDA, Reuters, Farm Futures
600 500 Total Soybean Shipments (Year To Date) 30.0% 25.0% Million bushels 400 300 200 100 0 20.0% 15.0% 10.0% 5.0% 0.0% Total Shipments % of USDA Forecast Million Bushels 1400 1200 1000 800 600 400 200 0 Total Soybean Sales & Shipments (Year to Date) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast
Unshipped Soybean Sales Million Bushels 1000 900 800 700 600 500 400 300 200 100 0 New crop sales 45 40 35 30 25 20 15 10 5 0 Next Year's Soybean Sales (Year to Date) Final Exports New crop sales Final exports 2,500 2,000 1,500 1,000 500 0 SOURCE: USDA.
$2.50 CBOT Crush Margin $2.00 $1.50 $1.00 $0.50 $- 1/3/2014 1/3/2015 1/3/2016 1/3/2017 1/3/2018 mil bu 200 180 160 140 120 100 80 60 40 20 0 USDA soybean crush 9/1 1/1 5/1 9/1 1 Jan 1 May 1 Sep 1 Jan 5/1/218 1 Sep Source: USDA
Percentage Of Crush Margin From Soybean Oil 40% 35% 30% 25% 20% 1/1/16 4/1/16 7/1/16 10/1/16 1/1/17 4/1/17 7/1/17 10/1/17 1/1/18 4/1/18 7/1/18 10/1/18
35% World soybean stocks to use 30% 25% stocks to use 20% 15% 10% 5% 0% 30% U.S. Soybeans Stocks/Use 25% 20% stocks/use 15% 10% 5% 0%
1,100 1,050 1,000 950 900 850 July Soybean Futures Seasonal Trends 690 680 670 660 650 640 630 800 620 7/30 8/30 9/30 10/31 11/30 12/31 1/31 2/29 3/31 4/30 5/31 6/30 Bull market year July 2019 Normal year July Soybean Futures Seasonal Trends Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 11/12 11/19 11/26 12/3 12/10 12/17 12/24 Ave. Gain/Loss 0.7 2.5 0.6 (0.4) 1.3 6.2 % Up 58% 60% 49% 53% 53% 58% % Down 38% 40% 49% 47% 47% 42% Ave. Gain - Up year 16.8 19.8 23.7 26.7 28.1 32.5 Ave Loss - Down Year (23.8) (23.6) (22.5) (31.5) (29.3) (29.8) Biggest Gain 46.3 67.0 70.3 100.0 119.0 197.3 Biggest Loss (97.8) (95.3) (90.0) (152.0) (113.5) (127.5) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from 1974-2018. Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.
250000 200000 Commitment of Traders - Soybeans $12.00 $11.50 net position in contracts 150000 100000 50000 0-50000 -100000-150000 -200000 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 Source: CFTC Index funds Hedge funds Futures $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 $8.00 nearby futures 150000 Commitment of Traders - Soybean oil 40 100000 35 net position in contracts 50000 0-50000 -100000 30 25 nearby futures -150000 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 20 Source: CFTC Index funds Hedge funds Futures
150000 Commitment of Traders - Soybean meal $450 100000 $400 net position in contracts 50000 0-50000 $350 $300 $250 nearby futures -100000 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 10/18 $200 Source: CFTC Index funds Hedge funds Futures