African Swine Fever, Chinese Tariffs Slams US Soybean Basis

A week ago I had the pleasure of visiting Noblesville Indiana as guest speaker of the local Hamilton County Farm Bureau. It is a six-hour drive from my farm near Dresden Ontario through some of the best land in the American corn belt. I don’t often get the opportunity to drive through American farm country, but I certainly enjoyed it. It is unfortunately I didn’t have more good news to speak about during my market talk that night.

One of the side benefits of my trip was I got to get into some of the corn and soybean fields of DTN subscribers and friends, George Kakasuleff of Cicero Indiana and Glen Newcomer of Bryan Ohio. I must say I was quite impressed with the crops in and around Cicero and Bryan, the soybeans were incredibly healthy and well podded. The corn looked great. I came away thinking there is no doubt about USDA’s predictions of big crops. Subsequent USDA reports may surely record ever-bigger numbers into January.

It’s pretty clear this year that soybean prices have declined for two reasons, one being a huge crop in the field and of course the problems we had with Chinese soybean demand. It was brought home to me today when I read about a North Dakota grain elevator that was pulling its bids for new crop soybeans. This was reported in the Williston ND Herald where a North Dakota State University risk management specialist is quoted as saying elevators in the eastern portion of the state have pulled their bids for soybeans. He went on to say that there’s literally no price for soybeans posted. He said that there were a small number of elevators like this now but he expected it to grow as harvest got closer.

So how do you like that for a rough soybean basis? In the same article it talked about how elevators are trying to save storage space for soybeans that they already have contracted. Needless to say in that part of North Dakota about 75% of soybeans generally go to an elevator, where they are then shipped to the Pacific Northwest. However, as we all know Chinese soybean tariffs have put a crimp in everybody’s plans. Needless to say, I didn’t expect elevators to essentially make the cash soybean price disappear. That’s how bad things are in that part of the country.

That is pretty rough for sure, but it is surely not the same in places like Cicero, Indiana and Bryan, Ohio. If you look at a basis map, those two small towns, one near Indianapolis Indiana and the other near Toledo Ohio have fairly healthy basis values compared to the rest of the nation. Remember, grain basis is a the value, which determines when grain is moved, bought or sold. In both those town’s cases, soybean basis is lower than usual but it is nothing like the Eastern part of North Dakota.

It’s hard to be even a little bit optimistic about soybean prices, but I find that so difficult to write. I say that because I’ve seen much in my 32 years of writing this column and even though we’ve had some dark times, we always come out the other side. As I told the farmers in Hamilton County Indiana, we need a solution to this China US trade war.

Unfortunately, the Chinese soybean demand paradigm is being clouded a little further. As you all know, several cases of African swine fever have showed up in Chinese hog farms. This disease causes hogs to have a high fever, a loss of appetite and bleeding. It can cause death within 2 to 10 days. So with 13 cases so far in the China, it’s got everybody a little bit nervous. The only way to get rid of this problem is to cull the hogs. Nobody can imagine that happening on a widespread basis in China, especially when they are the world’s largest per capita consumer of pork.

Lin Tan, DTN’s China Correspondent writes an excellent piece entitled “African Swine Fever May Reduce China’s Soybean Demand”. In the piece, Tan quotes Chinese officials who talk about how African swine fever if it continues could reduce significantly soybean demand and China’s soybean imports. With China’s soybean crusher’s reluctance to buy new American soybean supplies, it does open the specter of China’s strategic soybean reserve to be open to satisfy their domestic demand.

That paints quite a dark picture when you add the implications from African swine fever and the Chinese soybean tariffs. If China’s consumption goes down, it will be the first time in many years. With Brazil ramping up to grow even more soybeans, that won’t work either.

It makes me hope somewhere in this equation I’ve got it very wrong. It makes me hope we’re only an early morning tweet away from at least part of the problem being solved. Being positive takes work. There will be many soybean-pricing opportunities ahead, but we’ve got a few mountains to cross.