While there appears to be multiple “black swan” events taking place at one time, the soybean market is looking a bit more optimistic than other commodities.
“I think soybeans are actually the leader, in our opinion, for optimism,” said Luke Swenson, president of The Money Farm, West Fargo, N.D. “If you look at where we’re looking at for acre intentions, and where we’re going into the year demand-wise, soybeans is the story that actually could get pretty darn intriguing.
“We’re still saying for this year we’re going to finish out with 580 million bushels (MB) in ending stocks, but next year you’ve already got it ratcheted down to 400 MB,” he continued. “Well, on top of that, with the lower planted corn acres, you’re probably going to see a shift of a million or so more bean acres, so you’ve got to add say 40-50 MB to that number, so that gets us to 450 MB.
“That’s not an $8.40-$8.50 futures number. That’s a tighter ending stocks number,” he added. “The thing is the big balloon of corn sitting over the market is holding us down. If corn had a ‘2’ in front of the ending stocks and you’re looking at 400 MB ending stocks for beans, you’re probably back at the $9.50 mark.”
Swenson pointed out there’s artificial pressure on the market, even despite record crops out of South America.
“I think you’re going to see beans lead the way out of this just because of Chinese demand. If they’re going to catch up to the quantities (agreed to in the Phase One trade deal) they need to buy ag products from us and I think it’s going to be led by the soybean market,” he said. “We actually saw more old and new crop purchases from them (recently), and going forward I believe beans are going to be the thing they need to stock up on. They’re probably going to get some corn from us, as well, but obviously beans are the easy thing for them to purchase.
“It’s something they want to use and chew through relatively often. So that’s the main commodity. They know we’ve got quality sitting around,” he added.
Swenson feels China will eventually get to the goals of the Phase One deal because it would be in China’s best interest and “because I don’t like betting on the end of the world.”
“If you look at the pressures that be in the world, China just basically black-balled Australia because Australia is investigating the coronavirus. Whatever we believe about the coronavirus – media hype, true story, whatever – it should be investigated,” he explained. “Trump came out once and said ‘the trade deal doesn’t matter, we need to investigate this virus.’ That was the weekend Australia got black-balled for saying the same thing.”
But Trump later came out, Swenson added, and said that as long as China adheres to the Phase One deal, the U.S. wouldn’t investigate.
“I think everyone is aware of the potential warring possibilities between our two countries (because of) that,” he said. “If China tries to black-ball us on this, immediately I think you see Trump go to all our allies and western country friends and say, ‘Guys, look at this, this is how they’re treating the world. They’re trying to cover up this thing.’ It forces basically everyone in the western world to investigate. We’re in a position where we have our foot on China’s throat on this one where we can actually force everyone to really look into them and that’s when you can tip over their economy.
“I don’t even want to consider what it’s going to look like if you actually push China to where we tip over their economy and collapse the thing,” he added. “So that’s why I make the joke about not wanting to think about the end of the world. No one knows how they’d respond to that. I don’t want to think about it.”
Still, he thinks the most likely outcome of that will be that China will buy into it and see if they can figure out a favorable outcome where they can work their way out of this deal and keep their economy humming because it’s in their interest to try and move on from this.
“Innocent or not, I think it’s in their interest because just due to the natural environment of the world right now. They’re on kind of a razor’s edge and they can get tipped over pretty quick and I think they need to be extra careful because of it,” he added.
Swenson also noted the industry is starting to get a couple logistical issues from South America, as well, with coronavirus popping up and starting to hit packing plants down there. The way South America responds and how the market comes out of those hiccups is going to be interesting
“I think the story for beans is actually the optimistic one,” he said.
Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of May 26 the June cash price for soybeans was $7.84 and basis was -57 cents under. October 2020 futures price was listed at $8.51 and basis was a positive 7 cents.