It’s certainly controversial to say that in a world where the biggest producer of soybeans is in a trade dispute with the world’s biggest consumer of soybeans, that prices are too high. But considering that the Chicago Board of Trade soybean futures contracts have been trading their way through 2019 at higher-than-average price levels over the past three years, the question that really bears asking is: “How did we get here?”
In terms of North American soybean production in 2018, you could actually build a case for having similar prices. The harvested acreage of soybeans in the U.S. this past fall was slightly smaller than the area harvest in 2017, and at an average yield of 52 bushels/acre, yields were very close to those produced in 2016. Total U.S. soybean production in 2018 is estimated at 4.6-billion bushels, compared to 4.4-billion bushels in 2017, and 4.3-billion bushels in 2016. Without a doubt, there is a cumulative effect on total supply when production increases year over year, but the real distortion in the soybean supply and demand balance sheet this year comes from the devastating decline in demand.
Up to the third week in January in this crop marketing year (which started on Sept. 1), U.S. soybean export inspections are only 716-million bushels. That’s 461-million bushels fewer soybean exports than last year and with the 2018 supply of soybeans being the biggest on record, shipping them out at a slower pace is not going to tighten up supply.
Of particular concern is that American soybean exports were extremely slow during the months of October, November, and December when typically they are the highest. Although in their December report, the USDA estimated that American soybean exports would total 1.9-billion bushels in the crop year, the U.S. is currently only on pace to export 1.439-billion bushels. American soybean exports are 24 % behind the target established only two months ago, and 32 % behind the 2.129-billion bushels of soybeans exported by the U.S. in the previous marketing year.
There’s a misconception that if the trade dispute gets resolved, the back-log of soybeans will move out through the pipeline quickly. That’s clearly not the case. While it will certainly be helpful for the Americans to have un-impinged access to the world’s biggest soybean market, the reality of the situation is that China has been covering its soybean needs and meeting demand from other sources for the past seven months. If you owned a sandwich shop that had been closed for the past seven months, it’s not as if people would come in and purchase the last seven month’s worth of lunches on the day that your restaurant re-opened. It’s certainly better for sales if things re-open, but the potential to catch up on lost business is limited.
How or why soybean futures prices have maintained the same trading range as the past couple of years is hardly worth unpacking. While it’s interesting to understand how the machinery of the futures market is behaving, our principal responsibility as producers and sellers of soybeans in Ontario is to make the best marketing decisions that we can for our farm businesses.
At this point in time, with U.S. export sales lagging so far behind the USDA’s expectations, it seems certain that future reports are going to see American soybean ending stocks bumped up perhaps 200-to 400-million bushels from 956-million bushels in the December estimates to numbers in the range of 1.2-billion. While it’s astonishing that CBOT soybean futures prices have traded with small premiums to previous years in the early weeks of 2019, as the market fully buys into the notion that U.S. soybean ending stocks this year will be three times 2018, and four times 2017’s respective carry outs, it will be extremely hard for price to hold on.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.