China/US Soybeans: A Commodity is a Commodity and Cheap Always Wins

I was reminded today during a production meeting at a local elevator that I should keep an eye on 2019 harvest prices. With new crop soybean prices pushing $12 a bushel and new crop corn prices pushing $5 a bushel, those are often thought of as magic numbers among our local farming community. I must say that at this time of year as I’ve grown older I often have a harder time changing gears. With two weeks left until the calendar changes, I think it’s time to recalibrate again. These years keep marching on. Some day is getting so much closer.

That someday when China actually comes into the American market and buys US soybeans seems to finally come. It was announced by USDA that 41.5 million bushels of soybeans were sold to the Chinese in the 2018/19 marketing year. The market reacted by going down $.13 on the day. You could almost hear the air going out of the enthusiasm of our American friends. They have waited months since July 6th when China applied tariffs on American soybeans to right the wrong. The sale to China today of American soybeans was far from the enthusiastic market reaction many were expecting. With Brazilian beans set to harvest in January, dampened enthusiasm might be the order of the day.

As far as I know, the 25% Chinese tariff on US soybeans remains. The 41.5 million bushels is shrouded by mystery, but state owned green enterprises in China have always been able to apply to get the 25% tariff back. Needless to say, the announced sale by USDA does represent good intentions for the US and China to end this ridiculous trade war.

If you think about the soybean fundamental situation nothing really has changed. We are still looking at 955 million bushels of soybeans sitting in piles across the United States. That’s a lot of beans to move with South American supplies coming on within a month’s time, it is what it is. That record soybean price of $17.89 set back in 2012 seems like such a panacea now.

Within all of this trade war fog, it’s still difficult to see exactly what is going on. For instance, you might remember that last July I said the damage to the American soybean export market would be very difficult to fix and could last for years. About a month ago, I made the comment that the Chinese really did not have to pay premiums for a commodity, which is indistinguishable whether it’s from Brazil or the United States. So I was musing that it makes sense for them to come back to American supplies. Simply put, with commodities, cheap always wins and in the soybean case on a global scale, the Americans have the cheap soybeans.

The March soybean contract has responded within a $.70 range during this dampened enthusiasm. On November 26th, we were at $8.76 getting up to $9.41 on December 12th. The March corn contract actually gained $.20 over the same time, which is akin to an earthquake in that market. All of this shows that maybe we have been so focused on the trade war over the last few months that even the hope of a solution adds a bit of effervescence to corn and soybean prices.

In Ontario the long march to finish fall harvest continues. We all know about the difficult VOM situation in southwestern Ontario. We should also keep in mind that there are large areas of Ontario where the corn is clean, especially east of Toronto, north of list of Ontario and several other areas. So it is a mixed bag and we move ahead hoping the industry can get it right. I talked to one farmer this week that simply had too much snow to harvest the 500 acres of corn he had left. I saw another friend of mine harvesting soybeans at 10 o’clock at night. 2018 will go down as one of the most difficult harvests in several years.

The USDA raised Brazilian soybean production this week to 122 MMT despite the Twitter machine continually showing pictures of drought and wilting South American soybeans. At the same time weather forecasts are showing rains moving into these areas of South America. It’s that time of year when there can be a weather market spawned in Brazil and Argentina. A little bit of drought can add some excitement, even in December, when Christmas markets generally are quiet.

However, quiet is not what many American traders and farmers have been expected especially with the tweets coming from the American president predicting huge amounts of agricultural products slated toward China. A quiet 41.5 million bushels is a start, especially when the US soybean mountain is 955 million bushels high. Needless to say, we’ll take it. Remember, a commodity is a commodity is a commodity and cheap always wins. That 41.5 million bushels is the first signal that’s all true.