USDA released its April World Agricultural Supply and Demand Estimates report earlier this month, and although it wasn’t considered bullish for soybeans, it was seen as being “friendly.”
“USDA’s report was a little friendly to the soybean side of things because we didn’t see much of a change in the ending stocks estimate,” said Randy Martinson, president of Martinson Ag Risk Management, Fargo, N.D. “The ending stocks actually decreased instead of increased. Part of it was because of not much change as far as the demand side, so it was a little bit friendly to the bean side.
“Demand has been able to remain fairly decent, but I think USDA is waiting to see what comes out of China before they do any adjustments as far as exports are concerned,” he added.
Martinson noted that soybean crush has continued to remain very strong and that’s been somewhat supportive to the market as well.
“Right now beans are over-valued when you look at them fundamentally,” he said. “We’ve got an 895 million bushel ending stocks estimate, which is not friendly for soybeans, but because of the concern that China is going to come in and buy – and they could buy a lot – that’s keeping this market somewhat stable and holding its value.”
Another factor in the market Martinson pointed out is that the funds (buyers) are not as short and have actually liquidated some of their short positions recently which is somewhat friendly in the market as well.
On the not as friendly side of things is a delayed start to planting. Corn growers in the western Corn Belt and Northern Plains haven’t been able to get a good start to planting and are already considering a switch to earlier maturing varieties. If planting is delayed even further, they could switch to soybeans.
“That, long-term, is going to be a little negative,” he said. “But right now this market is still paying quite a lot of attention to the potential Chinese deal and they’re not willing to take this market too far down until we know exactly where that’s going to come into play.
“In the long run, things don’t look as positive for soybeans, but short-term there is a little bit of optimism in the market as once we get a Chinese deal announced that will increase demand and that’s what this market is continuing to watch,” he added.
Martinson thinks something will be done within a month regarding the trade deal with China. One reason for that is because agriculture can’t have this hanging over its head long-term. Also, there are other trade talks the U.S. needs to be engaging in, so there is a need to get this settled.
“I think both China and the U.S. want to get it done and move forward,” he said. “We’ve got other trade talks that we’ve got to start getting into play with, one of them being the Japan deal, one of them being in the European Union, so we need to move things forward and get things done.”
Besides trade deals, the market is also keeping a close watch on South American production which continues to be fairly strong. Harvest is moving along and is about wrapped up in Brazil and is making some good progress in Argentina. Recent rains in Argentina will slow harvest, but yields so far have been better than expected.
Yields in Brazil never did increase that much, he noted, and they are still looking at a slightly disappointing production for the country overall.
On the demand side there is a growing concern about African swine fever which has afflicted the hog industry in China and other countries as well.
“We are worried that Chinese demand for soybeans will decrease because of the African swine fever issue, but it appears that feed demand is remaining fairly steady,” he said. “A lot of it is being switched over to other animal sources. They’re looking at increasing their poultry; they’re looking at increasing aquaculture and that is taking some of the extra feed demand.
“Their hog industry is severely hurt because of the African swine fever issue, but we’re seeing some of that made up in other protein sources,” he continued. “It will also help in the U.S. demand if it does continue to go in that direction because we’re going to have to increase our pork production to supply pork to the world, primarily into China, as we will be one of the only countries that has not, as of yet, been affected by the African swine fever.”
Local soybean prices are still hanging around the $8 level, anywhere from $7.80 to $8, so the bean market is still performing fairly constant with what the market has been seeing over the last couple weeks.
As of April 16, local cash soybean prices at one elevator in west central Minnesota regularly followed in this column were $7.94 a bushel for April and basis was 93 cents under. December 2019 corn was listed at $8.20 with basis $1.10 under.
“Right now, if you needed to move grain, get anything on the cash side, the only thing I’d consider doing is locking basis levels in and delivering the grain,” he recommended. “I want to leave futures open, at least for the next 5-6 weeks, as we still have things in the market that spur a little bit of demand and, not to mention, the possibility of a Chinese deal. So I’d be looking at basis levels only, or if you had to sell and get cash, look at re-owning call options or some cheap way to keep ownership.
“We don’t want to miss any potential rally in this market, especially short-term when it could be coming,” he concluded.