Soybean

If producers were hoping to get a boost from the latest USDA crop progress report for soybeans, they were disappointed.

“The USDA report for soybeans was a real snoozer,” said Frayne Olson, grain marketing economist at North Dakota State University. “USDA only made a very small change in the forecast for crushing demand, so the soybean balance sheet was basically unchanged from the October report.”

In the report, yield for soybeans remained the same as the previous month at 46.9 bushels per acre (BPA), but that’s down quite a bit from last year’s 50.6 BPA.

Given the difficulties producers in the Northern Plains faced this growing season, Olson said many are frustrated that USDA is not dropping yields, but he doesn’t think USDA is going to do that until we get closer to the end of the season. He cautioned farmers, especially in this region, not to get trapped into a “backyard syndrome,” which refers to the belief that if something is happening here, it’s got to be happening to everyone else.

“That’s not necessarily the case. Everyone is susceptible to that, I am as well,” he said. “Please realize that just because we’re having a problem doesn’t mean everyone else is.”

There are a couple items the market is keeping a watch on, including the fact there are some weather problems, namely dry or drought-like conditions showing up in parts of Brazil. Producers there are in the middle of their planting season, but Brazil’s planting season is long enough that some of the farmers will just wait for rain before they put seed down.

“My view is this isn’t really big enough to make a difference in the market yet, but they’re definitely watching it,” he said. “It is something the market is watching, but they’re not really putting a price premium in in any way shape or form.”

The main thing the soybean market is following at this time is the trade discussion between the U.S. and China. That said, Olson believes people are getting tired of hearing about it because it seems like every day a new, but slightly different, story regarding the trade talks comes out, and both sides are putting their own spin on it, which makes it difficult to follow.

“Still, it is one of the big variables in the soybean market,” he said.

The latest story indicated China was going to purchase $50 billion worth of U.S. ag products over the next two years, but that information was coming from the U.S., Olson noted.

“Obviously, on the U.S. side we’re trying to put a positive spin on it, and the Chinese are trying to put a very cautious spin on it,” he said. “We’re getting some very different stories on where they are on the negotiations and whether they’re proceeding well or not. The biggest concern seems to be how quickly tariffs will be dropped.

“They’re both spinning the story, so we’ve got to be very careful and that’s what the market has been struggling with,” he added. “How do you filter all of this information and say ‘is it real or not’?”

The idea behind this “Phase 1 agreement” is that the Chinese would drop their tariffs on U.S. ag products and they would start purchasing more, and to reciprocate in kind the U.S. would start dropping some of its tariffs on Chinese products.

The story coming out of the U.S. is that China will be making $40-$50 billion of purchases over the next two years, up from about $20-$25 billion historically. That would be a huge increase, if it were true, Olson noted.

“However, the Chinese are saying ‘Well, we’re willing to purchase more ag products, but the Chinese also want the flexibility to purchase the products that they are most needing.’ All the Chinese have said is ‘agricultural products,’ they’ve never really targeted soybeans as being the big purchase,” he explained.

Historically, China has purchased a wide range of ag products from the U.S., including pork, poultry and soybeans, but they’ve also purchased corn, dried distillers grains, spring wheat, sorghum, some ethanol off and on, and a lot of fruits and vegetables, as well as nuts.

“The Chinese are saying they’re more than happy to buy more U.S. ag products, but we as the Chinese system - government and private - want to have the choice of what we buy and when we buy it,” he said.

Olson explained that if China is going to substantially increase the value, the total dollar volume of agricultural purchases, the quickest way to do that is to buy a lot of meat products, just because the price is higher.

“If China is going to suddenly double the dollar value of purchases, it doesn’t mean they’re going to double their purchases of soybeans,” he said. “I’ll be very honest. This has been going on long enough that the grain market, and futures market in particular, is just getting tired of listening to it. So (the market is) listening, but they’re discounting anything that comes out to a large degree.”

Olson feels the market wants to see actual U.S. sales into China announced and in the books before we see any real kind of price rally.

It is recognized that in the big scheme of things, agriculture is important to both sides of the negotiating process, but it is not the only item on the list.

“There are some really big issues, big, thorny, sticky issues that they’re trying to negotiate on and agriculture is only one of those,” Olson said. “Right now, to read the tea leaves of what’s coming next, it’s just almost impossible.”

U.S. export sales of soybeans have been slow, as they have been over the past two years, but it’s better than it was at this time last year. The Chinese are in buying mode again, although it’s in smaller quantities. At this time last year they were buying nothing.

“Our export sales for soybeans are better than last year. We’ve been able to book a few more sales for delivery in later months, but it’s way, way behind our normal pace,” he said, adding that the U.S. has been making a few sales to Southeast Asia, including the Philippines, and a few sales to Mexico as well.

Local prices in central and eastern North Dakota and western Minnesota are in the $8-$8.10 range for immediate delivery, and about $8.15 by February/March. At one local elevator in west central Minnesota regularly followed in this column, as of Nov. 13, the November cash price for soybeans was $8.38 and basis was -75 cents under. July 2020 cash price was listed at $8.58 and basis was -94 cents under.

“There’s really not much carry in the market or a lot of incentive to store it yet,” Olson said. “The challenge we’re going to have is if you haul it into the elevator right now and sell it, or even if you do a delayed pricing contract, the advantage is you have it in town. It’s very easy to make a phone call and sell it, there’s a lot of flexibility in that.

“But I also know that drawing charges are pretty steep right now from the elevators for both corn and soybeans,” he continued. “The elevators are being a little cautious in how much wet grain they bring in. Farmers are going to have the same problem. When you take it off wet, how long can you store it before you really have trouble?”

Olson stated he’s concerned that farmers are going to market their crop because of cash flow needs, not necessarily because they have a good plan in place to try and sell their grain.

“I’m not trying to criticize anyone. Every farmer is just trying to get the crop out of their field and find a home for it, and they’re not really thinking a lot about marketing and sales at this point,” he said. “And I don’t blame them. Today’s prices are not horrible, but they’re not the best either.”

Although the focus is on just getting the crop out of the field and finding a home, Olson issued a word of caution not to ignore the market.

“There may be opportunities that pop up, like if we do see some kind of an agreement or China does come in and buy more grain than we expect,” Olson said. “I think short-term that’s a low probability, but stranger things have happened.”

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