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Soybeans get a Global boost

Published on Monday, October 28, 2019

The USDA updated harvest progress numbers Monday afternoon.  Corn is slightly lower than the average guess at 41% complete, behind the five year average pace of 61%.  Soybeans are now 62% harvested vs. the five year average of 78%.  While much of the focus in the United States revolves around harvest progress and weather, there are other forces at work in soybean markets giving price a welcomed harvest boost.  The greatest of these is the potential deal with China.

It is important to understand the scope of this discussion.  Earlier in the month there was a great deal of discussion about $40 to $50 billion in Chinese purchases of US Agricultural products.  That has since drifted lower to a projection of 20 billion.  That would still be double of 2018 performance and well above 2019 estimates, but more in line with the years that preceded them.  An agreement between the US and China also represents stability for many a market that have long been void of such a trait.  Such an agreement would likely spell immediate support for soybeans, the number one Ag export product to China.  See 2017 (pre-tariff) Ag Exports to China table above.

With the Chinese conversation cued up, other factors carry greater value.  South American weather is one of them.  In recent years, Brazil has gained an increased market share in Chinese soybean purchases.  Annually, the market nearly requires another big crop from Brazil to keep up with trade flows.  That has been amplified in the last 18 months.  A growing threat of dryness in recent weeks (especially in the northern 2/3 of the country) brings that potential into question.  A look at the forecast expects more of the same in the next ten days with a chance for precipitation first showing up in the 11-15 day forecast.  Here is a closer look:

Should dryness continue deeper into the planting season, US soybeans will be more heavily demanded now by global buyers.  Hence the recent bid in soybean prices and firming basis.  In this case, we may be only one rain event away from a change to this story, but producers are encouraged to manage this opportunity with appropriate action.  Sell strong harvest basis, set targets for 2020 sales, buy put options on what is not sold.  For a more detailed plan of action that fits your operation, give us a call at the number below.