The U.S. Department of Agriculture (USDA) released some supply and demand updates on Aug. 12, which garnered a lot of attention in the trade, but the market is also keeping a close watch of crop development, as well as the weather.
“In its report, USDA increased the soybean yield estimate more than what the trade was expecting,” said Frayne Olson, grain marketing economist at North Dakota State University. “Based on the survey results of farmers and satellite imagery, USDA came up with a national average 53.3 bushels per acre. That compares to the trendline yield, or long-term average, of 49.8 bushels per acre.
“That’s a pretty aggressive number, and that one caught the market off guard,” he continued. “Most people were saying, ‘yes, we’ve got a good crop coming and we’ll see a higher number,’ but that was bigger than we thought. We thought it was going to be big, but not that big.”
The new yield estimate pushed estimated production from a July forecast of 4.135 billion bushels (BB) to 4.425 BB.
“That’s a pretty big jump from one month to the next,” he said. “That is not a record, but it’s very close to record production.”
Olson pointed that USDA made adjustments on the utilization side. USDA increased usage numbers, adding a little to the forecast for domestic crush, going from 2.16 BB and to 2.18 BB.
The consensus with colleagues around the trade, Olson said, was that that was very achievable and we may actually see a little bit higher numbers depending upon what happens in the soybean oil market.
“That doesn’t seem like a big increase, but psychologically that was important. That’s a record high crush as far as domestic utilization,” he said. “ I’ve heard private analysts say they don’t think we have the capacity to do that, that the industry isn’t big enough to push that much product through, but the consensus right now among others in the industry is that yes, we can do that. So that’s a positive.”
Another thing USDA did was to increase the export number, going from 2.05 BB to 2.125 BB, which again, is “way bigger” than we’ve seen the last couple years due to the trade war.
“What that is signaling is they do expect China to continue to buy U.S. soybeans actually at levels similar to what we saw before the trade war started,” he said. “Again, they’re not record levels of exports – we’ve seen higher in the past – but we’re now starting to return to more ‘normal’ levels we saw before the trade war.”
Olson cautioned producers that they need to remember that Brazil had record soybean production last year and the forecast is for Brazil to increase acreage again next year. The current expectation in the marketplace is that Brazil will produce more soybeans than they did this year. That means the U.S. has a relatively short window to be able to get those sales taken care of before the Brazilian crop comes on line.
“What I’m trying to signal to farmers is that you have a window of opportunity here. It looks that China will be a more aggressive buyer – they’ve already started coming back into the U.S. market and buying on a pace like they have in the past – but that’s only going to last until probably February,” he explained. “By the time we get into early to mid-February, China’s buying slows down quite a bit as they’re waiting for the Brazilian crop to start harvest, so we only have a few months window to take advantage of this extra Chinese buying.”
Olson explained that he’s trying to get farmers to be watching very closely for opportunities on soybeans because the U.S. is expecting a really big crop of soybeans this year.
“We’ve got good supplies carried over from the last three years that we still have to chew through,” he said. “There is no shortage of soybeans in the marketplace, which means that the rallies that we might get likely won’t last very long. We may have these little windows of opportunity, but they aren’t going to last too long, so when you see them take advantage of them.”
Basis levels, according to Olson, have widened out a little, but he’d still take advantage of current prices if he could. Some elevators have started dropping basis to levels producers normally see at harvest, he noted, but there’s still a few elevators that have some pretty decent basis bids for harvest delivery. The basis levels are going to vary by location.
“There are a few places that are -65 cents under and there are some that are -$1 under,” he said. “Some of the elevators have got their harvest supplies laid in and they’re just waiting for the beans to show up.
“November soybeans (on Aug. 18) closed at $9.13, so if you take 75 cents off, that’s a cash price of $8.38 and we haven’t seen that in quite a while,” he said. “By the time this (article) shows up it could be higher or lower, but these are the kind of windows that farmers need to be looking for because there’s not a shortage of soybeans in the U.S. and there certainly isn’t on the global stage.”
Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of Aug. 18, the August cash price for soybeans was $8.43 per bushel and basis was -70 cents under. The September 2020 futures price was listed at $9.14 and basis was -1 cent under.
Lastly, considering the derecho, the major storm that went through Iowa earlier this month, Olson noted the damage wasn’t as bad for soybeans as it was for corn, partly because soybeans weren’t as far along and are lower to the ground and weren’t impacted as much by the high winds.
“Soybeans are starting to set pod right now. There was some damage, but it was not extensive,” he said. “It was pretty minimal damage on the soybean side. The soybean yield potential is still there.”