The soybean market, like other commodity markets, is trying to deal with the ongoing impacts of the coronavirus, which is disrupting everyday life. Analysts are looking at the impact of the coronavirus and how the market can play out of it, according to Luke Swenson, president of The Money Farm, West Fargo, N.D.
Congress is considering a bailout of some sort to help bolster the economy, which could include large outlays of money to businesses, as well as citizens.
“As you look at the ways we can play this out, it’s more than likely going to be a heavy amount of government money coming in end-to-end across the spectrum,” Swenson said. “With quantitative easing, which we’re more than likely going to have to do a hefty amount of, you’re more than likely going to see the dollar pull back.”
How far the dollar pulls back will create its own set of challenges and could potentially lead to a recession. But there is a difference between this situation and other recessions, Swenson noted.
“This truly is an act of God. No one prepped for it. It wasn’t greedy lenders and homeowners spending too much, none of that,” he said. “It came out of nowhere and it put the world into a state of shutdown we’ve never ever seen before.
“You saw that it started with the airlines and it’s going to ripple very fast through restaurants, hotels, everything,” he continued. “Plus it’s going to hit manufacturing, and we’re going to have to try to keep logistics and everything going. Then, on top of that, you have the second black swan that is Russia and Saudi Arabia basically playing Russian roulette with each other with oil production. It’s making an already sticky situation even stickier. That’s where we’re sitting.”
At the time of this publication, March 27, producers are starting to gear up for spring planting and deciding what crops they’ll plant. More will be known when USDA releases its Planting Intentions report on March 31.
Basically, Swenson noted on March 17, producers were about a month from bean planting, and about three weeks from corn planting starting to pick up.
“You’re actually going to have to trade out of there with what are our acres actually going to be this year,” he said.
Earlier this year, Swenson said, corn was considered “the prettiest commodity” as producers were contemplating planting more acres to corn, which would take acres away from soybeans.
“Making it even more supportive for beans is the fact that Brazil and South America have a big bean crop,” he said. “But there’s absolutely no incentive to plant beans in the U.S., right now. The futures aren’t supporting it. The ending stocks are tight. If there is anything that is detrimental to bean acres again and futures price or activity of inputs or something like that between now and planting, beans would actually become a really bullish story out of this scenario.”
In Argentina producers have got a big crop, as well. There might be “a couple little supply hiccups there,” although no one knows how big, but they have to keep paying attention to it as they march forward, he noted.
Looking at soybean prices, Swenson said prices have basically pulled back another 60-70 cents and are pushing around $8.20 on the front months. November’s are on $8.45.
“I honestly think you see a run at the $7 mark, not 7-0, but a 7 in front of beans,” he said. “At that point there’s no need to have any hedges or anything on. You’ve pulled down so much versus cost of production versus everything else that unless there’s a couple rebounds into May you’re going to see bean acres fall off to even more than they expected.
“We’re at the point where we’ve got a third hedged and we’re probably one significant down day from lifting all our hedges and just letting the market go back to work,” he added. “We’ll stay out of it, take all hedges off and leave it be until we’re in the ground.”
At one local elevator in west central Minnesota regularly followed in this column, as of March 18 the March cash price for soybeans was $7.63 and basis was -65 cents under. The October 2020 cash price was listed at $7.62 and basis was -80 cents under.
Demand for U.S. beans is still difficult, according to Swenson, adding that the U.S. dollar is at the highest point it’s been against Australia since 2003 and it’s the highest it’s been against Brazil “basically ever.” And against the Euro, the dollar is historically as strong as it has been against that.
“We’re running up against all of these currencies that we compete with, so it’s still the hardest one,” he said. “You look at the Brazilian real, we went from basically a 2.2 exchange rate a decade ago to a 5-1. We can’t compete with that. So if we end up doing heavy monetary easing and we pull back, say just to a 4-1, that changes the supply and demand picture on beans for the world really quick and the U.S. becomes the source of truth for demand.
“Right now we’re crushing at record pace in the U.S.,” he continued. “Exports are subpar but we expect the same. We just signed an agreement with China and then two black swans basically erupt in the next month.
“How do we trade out of that? No one knows. But as far as standard demand, that’s strong. Exports are tough, but the rest of the world is still chewing through beans. China is buying it borderline at a record pace and the world continues to spin on,” he concluded.