China’s Soybean Demand Remains the Huge Constant for Soybean Prices

Soybeans 510
It looks like the weather is finally changing and farmers are getting into the field across the US corn belt.  Sure, there are still some of us who have wet fields but the forecast for Southwestern Ontario is “sunny days” for the next week.  That might put our first corn planters in the ground in Ontario toward next weekend.  It might even give me time to get some nitrogen on my winter wheat.  Of course, it’s also time for that grain rally, which we have essentially been waiting forever.

That grain rally has been a problem as we have been in such a sideways to low pattern for so long.  We have bearish fundamentals everywhere.  However, despite those bears, which will kill you, soybeans have actually rallied $1.00 since the first of March.  At a certain point, we have to figure out why.  Almost every soybean analyst that I talked to hasn’t quite got that figured out.

As all of you know I grow quite a few acres of soybeans in southwestern Ontario.  I am not new at this, having grown up in the soybean fields in the 1960s, where weed control was a hoe.  40-bushel beans I always mused are still etched on my fore head.  Last year I averaged 49 bushel/acre soybeans, which was my third highest ever.  The only problem is it’s 50 years out.  Soybeans need an infusion from the genetics god.  They have to do better to keep up with corn’s superior productivity advantage.

Having said that, we still have that $1 rally over the last month in soybeans.  I was not predicting that a month ago, in fact, I didn’t see anybody predicting that.  When something like that happens in 2016, I look to China.  Every day, in China and in other parts of East Asia consumers sit down to some soybean product.  The demand is huge and growing.  The $1 rally in soybeans has to have something to do with that, or does it?

It got me thinking today.  I got a message over the social network twitter that China was expecting to increase their soybean production by 40% by the year 2020.  At first glance when I read that it was just another bearish factor for soybean prices.  Simply put, if China could expand production 40%, what would happen to American and South American soybean exports over the next four years?  Clearly, that would not be good.  However, that goes against what I know about Chinese soybean production.

China is a big place, but there is not a lot of arable land.  We know that incomes have risen there.  We also know it is still the world’s most populous country.  When I am in Asia, like I have been on five different occasions you could almost feel the world shifting.  That part of the world is hungry for almost everything and soybeans remains one of them.  I can understand the report about trying to raise domestic production 40% in four years.  However, it doesn’t add up to me.  They will either need a lot more arable land or some super Chinese soybean genetics to make that happen.  At the end of the day, soybeans still lag behind in that category whether it is here or in China.

Earlier this week Dow Jones reported that China had imported 6.1 MMT of soybeans in March, which was up 36% from a year ago.  It was also reported that edible oil imports were up 44% in March from a year ago.  Do you see a trend here?  It is one thing to have overproduction, which we certainly have in wheat and in corn, but it is another thing to have their fundamentals influence us on the soybeans side.

I am not a prophet when it comes to soybean prices.  They are actually out there, but my refrain is always nobody knows.  However, what I do know is despite slowing economic growth in China the demand for soybeans and their related derivatives continues to grow.  Much of this is being satisfied by Argentinian and Brazilian soybeans exports. Which remains a very solid reality to the floor under soybean futures prices.  The Chinese soybean demand story continues to be a constant.  A $1 rally in soybeans over the last month is testament to that.

So as the days grow warm part of the mix going forward on soybeans is how much our American friends plant this spring.  Remember, the USDA says 93.6 million acres of corn and 82.24 million acres of soybeans.  However, if the rest of April is kind, maybe those corn planters keep rolling.  Or will that $1 rise in soybean futures over the last month change the acreage game completely?  The answer of course is nobody knows.  That will become clearer in the next six weeks.  We’ll see if soybeans continue to follow the script.  It’s supposed to be all doom and gloom out there.  Since March, soybeans aren’t following that mantra and maybe it will continue deep into 2016.