According to experts, locking in a feed price at this time may be advisable because changes in supply and demand for soybeans could mean current low feed prices won’t be around for much longer.
“I believe in averaging in,” said Russ Vering, operator of Central Plains Milling in Howells, Nebraska. “Lock some in and wait for a market move.”
Soybeans have been trading at low prices for the last few years. Corn is possibly bottom 30%.
“I think we are near the bottom of the price cycle – for now,” said Robert Tigner, University of Nebraska-Lincoln agricultural economics extension educator. “I know that the crop tour put corn and soybean yields lower than USDA estimates, but in my travels in southwest and central Nebraska corn crops really look good. Soybeans not quite as positive.”
It makes sense for livestock producers to lock in a significant part of their future feed ingredient needs because of uncertainty, said John Baize, president of John C. Baize and Associates, and a consultant for the U.S. Soybean Export Council.
U.S. prices will rise if: The U.S. soybean crop is smaller than the U.S. Department of Agriculture expects; the U.S. and China reach a deal on trade in next three months that results a return to normal China tariffs on U.S. soybeans, and the Brazilian and Argentine soybean crops appear to be smaller than in the last year.
According to USDA reports, 2019-2020 expected soybean production has been reduced by 165 million bushels (about 4.5 million metric tons) to 3.68 billion.
USDA expects China’s soybean imports in 2018-2019 at 83 million metric tons and 85 million metric tons in 2019-2020. Its imports in 2017-2018 totaled 94.1 million metric tons.
“China’s reduced import demand is because of smaller swine herd caused by African swine fever,” said Baize.
According to Tigner, there was talk that the Chinese government will be subsidizing its hog producers to rebuild herds depleted by the swine flu.
“That would be good for U.S. soybean sales,” he said. “Brazil will not be able to ramp up soybean growth as fast as China could add hogs.”
USDA expects Brazil to export 69 million metric tons of soybeans in its current marketing year. In the current year the U.S. has exported about 13.2 million metric tons.
“We have an export forecast in expectation of probably shipping to China again this year despite the ‘import duty’ that they seem to look the other way on as needed,” said Keith Menzie, USDA economist and oilseeds specialist .
If producers are subsidized and they can replace hogs a little faster as a result, that could be a plus for U.S. exports as Brazil is not even able to meet the current demand from China – as was the case in 2018-2019, he said.
Even though crop progress reports suggest corn crops are behind last year and below average, a warm September and late freeze may help corn producers, said Tigner. But, farmers are going to have a long harvest and likely will be drying more than usual. So, we may not have as wide a corn basis as normal, he said.
“If I am right, then lower prices and weaker basis is likely,” Tigner said. “Feed users need to watch (corn prices) and pull the trigger on their feed needs in the next three to five weeks.”
Vering agrees. He said prices could go lower on corn.
“I believe that we could see lower prices; lower movement and being wrong is good,” he said. “However, it’s not bad idea to lock-in and buy some protection.”
Jon Burleson can be reached at email@example.com.