Soybean

The soybean market ended the month of November on a down note, but after the first few days of December soybean prices have picked up a bit, just in time for the holidays.

“We’re now in the process of our fourth day up (in prices), which is a nice thing because that was preceded by eight straight down days, up until Dec. 4, and then we started to go up. So it’s a good thing” said Ed Usset, professor emeritus and grain marketing economist with the University of Minnesota.

“I’m not sure what the heck is driving it,” he continued. “There is a little concern in South America with weather, and some dry spots in Brazil and Argentina. I don’t know if it’s time yet to push the panic button there, but it’s a big issue. It’s always going to be an issue, the South American weather.”

One item that Usset seems sure isn’t driving the uptick in prices is the ongoing trade war with China and the lack of any agreement.

“This is not a bullish thing,’ he said. “The trade negotiations that were about to be settled a couple weeks ago, which was probably the sixth, seventh, eighth time, you pick a number, that we’ve been told we’re about to fix this thing and move on, well, it’s not going to happen. That’s not a bullish thing.

“I remain in a ‘show me’ state,” he continued. “I’m not going to listen to anything that the news or the administration tells me. I want to see it happen, and we don’t see it happening. That’s not bullish, but we’re dealing with it. Maybe this South American weather is a bit more of an issue.”

Recently, President Trump had indicated he would be okay with the idea of waiting until after the 2020 election before getting a deal done with China. That’s something that Usset feels would not be beneficial to producers who are struggling financially.

“I just don’t understand that. That would be three years of this trade war, which was supposed to be ‘easy to win.’ Well, apparently it’s not easy to win and here we are,” he said. “I guess the amazing thing is that a lot of people thought the economy would absolutely collapse with this trade war and that hasn’t happened. But, the farm producers are hurting. I’m hearing from people that if it wasn’t for the Market Facilitation Payments it would be bad news.”

There’s some good news in that China has made a few purchases of U.S. soybeans, but at this point no one knows for sure if there will be more coming in the near future.

“We’ve seen a few sales, but I’m not seeing a trend in place that makes me feel differently,” he said.

At the time of his report on Dec, 9, Usset noted that USDA was coming out with a new supply and demand report the next day. The December report, in general, isn’t one that typically brings big changes and Usset feels this one will be the same.

“I don’t expect any big surprises. I think when you get into the new year, into the January or February report, USDA might do some revisions,” he said. “They’ve got more information to start making any bigger revisions. It seems to me the history of the December report is that it’s pretty sleepy.”

The USDA report in November was more of a surprise because it pegged the 2019 crop as better than expected, given the late start to planting and the difficult harvest conditions. There is still crop left out in the field due to an early winter storm in October and cold, wet conditions after.

“I think the market has come to realize that yields were surprisingly better than a lot of people thought they could be. That’s the way they feel,” Usset said.

Looking at demand for soybeans, Usset noted that crush demand has been good and that the crushers “are making money.”

“That’s about the only side of the soybean equation that makes much sense,” he said. “The crushers are having a very good year. The exporters and the merchandisers, I’m not so sure about them, certainly not the farmers, but the crushers are doing well.”

Looking at local cash prices in southwestern Minnesota, prices were in the $8.30-$8.40 range as of Dec. 10.

“We had a nice rally into mid-October, but we’ve come off from that,” Usset said. “We were up at $8.50 for a while, so we’re 30 cents off that, although today we’re up a dime. I don’t know if that’s reflected in the price right now.”

He also noted that the basis on soybeans in southwest Minnesota was 50-60 cents under the January.

“That’s got to be about the best soybean basis we’ve seen in a long time,” he said. “Basis in corn, as in soybeans, is telling us something: That it’s hard to buy these products. And that has everything to do with a smaller crop, not a disastrously small crop, but a smaller crop, a crop that was very late to get in, and (producers) are holding on to it.

At one local elevator in west central Minnesota regularly followed in this column, as of Dec. 10, the cash price for soybeans was $8.31 and basis was -70 cents under. July 2020 cash price was listed at $8.49 and basis was -92 cents under.

“I’m looking at a bid for soybeans in Jackson, Minn., that’s -50 cents under the January. That’s got to be the best basis in that part of the country in three years,” he added. “I’ve got to go back to the summer of 2016 in Pipestone, Minn., to see a basis that good. That’s impressive.”

Usset said his recommendation to producers has been to sell a large carry with harvest over. “Now we’re waiting for the basis to improve, and I’m seeing that improvement,” he said. “So that’s something a guy has to take a look at relative to trying to get what they need done.”

But there are two questions producers need to ask: Has the basis improved enough? Will it keep improving?

“If you had a hedge on at a decent price, and you see that strong basis, it’s tempting,” Usset said. “But you’ve got people who don’t want to sell grain this year because of tax issues. If you’re at Dec. 9 you might say, ‘well, I’ve got to wait at least three weeks because I have to get into the next tax year.’ So that could be contributing to that strong basis. But that’s a good basis. I’m looking at good basis levels in soybeans. Soybeans are the good news.”