Uncertain Outlook

By Barb Baylor Anderson

uncertain outlook

Anything’s possible with the 2020 soybean market. But one thing is certain: When you see an opportunity to hedge some production using November soybean futures north of $9.80, do it.

“More than any year I can remember, 2020’s outlook is very much a work in progress. Soybean farmers will want to hedge early in the year, especially if we get to $9.80 futures. This could come with prolonged South American weather concerns or following USDA’s final 2019 crop production report,” says Mike Zuzolo, president, Global Commodity Analytics and Consulting.

Zuzolo sees similarities to 2017-18 when the U.S. soybean carryover was 438 million bushels. The average price that year was $9.33 per bushel. While the soybean carryover at the end of the last marketing year was 913 million, the current year’s estimate is down to 475 million.

At the same time, the 2019-20 global soybean stocks-to-use ratio of 27.2 percent is already below 2017-18’s 29.2 percent. And near-term tighter soybean supplies create some 2020 price optimism for Curt Kimmel, owner and commodity broker for Bates Commodities.

He agrees $9.80-$10 is a good target for hedging. “Farmers should really consider using the futures market. The basis for fall delivery is too wide for forward cash sales,” he says.

Long-term challenges to profitability will likely remain. “U.S. farmers will need to look at being low-cost producers,” says Stephen Nicholson, senior grain and oilseed analyst, Rabo AgriFinance. “The trade war alone has reduced the average price paid to soybean farmers by $1-1.50. African swine fever (ASF) has added another 50 cents to a dollar to the reduction.”

RaboResearch analysis shows a 75 percent probability farmgate prices will remain under $9.60 per bushel. The trade war with China, African swine fever (ASF) and global weather may be the three primary factors that could move the soybean market during the coming year. 

Ongoing Trade War

While soybean demand is relatively solid, U.S. soybean exports may be overestimated if China trade negotiations remain stalled or become unfavorable to U.S. farmers.

“We saw China become a more active buyer of U.S. soybeans later in 2019 because they saw U.S. soybeans as competitive against South America’s and they wanted to placate the Trump Administration during negotiations.” says Zuzolo. “There is about 4.6 million metric tons of soybeans on the books potentially at risk of cancellation if negotiations falter.”

If the tariff spat does continue, farmers may see irreversible damage to their market. 

“We need to reestablish China as a trade partner soon,” says Kimmel. “It is hard to recapture market share as China builds relationships with South America for soy and with Denmark for new pork breeding stock to replace that destroyed due to ASF.”

Persistent Pig Disease

contries reportin ASFMarket watchers say the hole in soybean meal demand created by ASF in China and Southeast Asia will last until the disease is under control. China produces 25 percent of the world’s pork.

“The longer ASF is an issue, the fewer pricing opportunities U.S. soybean farmers will have,” says Zuzolo. “Should it spread to North America, it may have a devastating impact on demand.”

asf map

Worldwide Weather Watch

On the supply side, Kimmel notes the key to price direction lies with Southern Hemisphere weather, which could lower yields there, and then to the U.S.

“If spring U.S. weather cooperates, we could see a rebound in soybean acres. The USDA baseline is 84 million planted acres with a trendline yield of 50.5 bushels per acre. That would mean a 500-million-bushel carryover with good weather, and a cap on prices,” he says.

With risk of oversupply weighing on corn and soybean prices, Nicholson says maintaining crop rotations and “crop diversity is good strategy for capturing price strength and keeping production costs down. Specialty premium prospects are also attractive for increasing revenues.”