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2020 Outlook: Trade, production uncertainty weighs on soybean market


EAST PEORIA, Ill. — A decline in soybean production due to delayed or cancelled planting came at just the right time from a balance sheet perspective.

“Thankfully, we had a 12 million harvested soybean acres drop because we didn’t need it,” Todd Hubbs, University of Illinois agricultural economist, said at the Dec. 18 Illinois Farm Economics Summit.

U.S. soybean ending stocks continued a five-year pattern of growth from a low of 191 million bushels in the 2014-2015 marketing year to 913 million estimated for 2018-2019.

“Luckily, we didn’t end up with over one billion bushels ending stocks. What we’re looking at right now is a really strong crush, good export numbers, and we’re still open on these production numbers,” Hubbs added.

On the 2019-2020 production side, the U.S. Department of Agriculture earlier this month plugged in a 46.9 bushels per acre national yield average for projected production of 3.55 billion bushels.

Hubbs’ balance sheet used an average yield of 45.8 bushels per acre resulting in production of 3.453 billion bushels.

“Much like corn, I hear the same kind of stuff for soybeans. We planted a lot of soybeans so late. They were a little bit better in Illinois than I think a lot of people thought we were going to get on yields. We’ll see what happens out in the western Corn Belt. Acreage was down significantly,” Hubbs said.

Rising Crush

On the usage side of the soybean balance sheet, crush is forecast to continue on a rising trend. The forecast was also strengthened by the move by U.S. legislators last week to amend the government spending bill to extend a tax credit for the biodiesel industry through 2022 retroactively to its 2018 expiration date.

Crush has increased by 1.873 billion bushels in 2014-2015 to an estimated 2.092 billion in 2018-2019.

“We have a really strong soy oil prices. Soybean meal prices have gotten a little bit stronger. Meal prices had been quite weak considering the amount of livestock we were doing,” Hubbs said.

“Crush is estimated at 2.105 billion bushels for 2019-2020. The November crush report was a little bit lower than the trade expected, but still we only need to do about 165 million bushels a month to hit 2.105 billion and that’s the pace we’re on. I think this number is pretty safe, 5 or 10 million one way or the other.”

China Conundrum

The ongoing problem in the soybean complex is exports, going from a high of 2.166 billion bushels in 2016-2017 to 1.748 billion in the 2018-2019 forecast. USDA slightly increased the current marketing year’s export forecast at 1.775 billion bushels.

The trade war with China has cast a long shadow over the U.S. soybean market since mid-2018.

This past October, President Donald Trump announced a “phase one” trade deal with China with the two sides working out the final terms.

U.S. Trade Representative Robert Lighthizer announced last week that details of Chinese purchases across U.S. agriculture, manufacturing, energy and service sectors in the “phase one” deal would soon be released. Chinese officials have not confirmed commitments to purchase U.S. agricultural products.

During a “typical” year before the trade dispute, about 1.1 billion to 1.2 billion U.S. bushels of soybeans were exported to China annually over the few years prior to 2018.

Hubbs believes a new trade deal may be a reversion back to the previous levels.

“I think it has to be, maybe not this marketing year. I don’t want everybody to think when this trade deal goes through for soybeans that all of a sudden China is going to start buying millions and millions of bushels of this old crop because they have put deals in place with Brazil and Brazil has got to do something with the 4.5 billion bushels. They’re not going to eat it all,” he said.

“I think you might see a lot of soybean buying back-loaded into the 2020-2021 marketing year.”

Best-Case Scenario

Hubbs said the best-case scenario if a deal with China is finalized is exports increase 100 million to 150 million bushels from what USDA is currently projecting “because we’re going to lose other markets that we picked up as Brazil sent a lot to other places. But for the next marketing year, if the deal holds through that whole period, we’re back to normal.”

Another problem is China doesn’t need as many soybeans as it did previously because between 40% and 50% of the hog herds have African swine fever problems.

“I think China is wildly optimistic on how quickly they can rebuild the herd. I hope they’re right. I don’t think they are. I think it’s a four to five year thing. I think we’ll see a somewhat depressed demand, but even at that you’re looking at 3.1 billion to 3.2 billion bushels of imports with China and we’re going to take a big chunk of that,” Hubbs said.

In years prior to the trade war, China would purchase U.S. soybeans in the latter part of the calendar year and then transition to Brazil soybeans during the harvest there in the first part of the year. However, over the last few years, “Brazil has been getting rich off of our trade problems,” Hubbs said.

To pick up some of the slack, the United States has picked up some traditional Brazilian soybean customers such as Pakistan and Egypt, countries that previously were not U.S. soybean buyers.

“That sort of helped mitigate the trade war problem a little bit. Of course, when China takes 60% of the world’s soybeans I’d rather them buying a lot from us than Pakistan buying 20 million bushels here and there,” Hubbs explained.

Bottom Lines

Turning to the bottom line for the 2019-2020 forecast, USDA has ending stocks at 475 million bushels and an average farm price of $9 per bushel.

Hubbs projects ending stocks of 383 million bushels on less production, stable crush and 5 million less exports than USDA anticipates. His season average farm price for soybeans during the current marketing year is $8.90 per bushel.

“I think USDA’s use numbers are really close. If the China deal goes into place we could see this pop significantly. It might impinge crush, but we have the beans and I think we’ll be fine, particularly if Argentina gets out of the meal and oil market that will help us. You could see the carryout down to 300 million easy.

Hubbs also gave a long-range forecast for the 2020-2021 marketing year where he anticipates planted soybean acres to reach 85.4 million acres, 1.4 million higher than USDA’s baseline forecast for that year. He has yields at 50.3 bushels per acre, 0.2 bushels less than USDA.

On the 2020-2021 consumption side, Hubbs projects crush at 2.115 billion bushels (USDA’s is 2.135 billion), exports of 1.8 billion bushels (USDA used 1.895 billion) and seed and residual slightly higher than USDA.

The USDA has 2020-2021 baseline forecast ending stocks of 533 million bushels and a season average farm price of $8.85 per bushel, compared to Hubbs’ 609 million bushels of ending stocks and a average price of $8.50 per bushel.


“My model has 85.4 million planted soybean acres, but if the prices start to turn and we’re starting to see the carry build out through the 2020-2021 marketing year we may plant more than that,” Hubbs said.

“Coming out of the 2012 drought, we had the price spike and then things leveled out, in a normal year under normal trade relations we were doing about 89 million acres of corn and 89 million acres of soybeans. It would be very easy I think to revert to that kind of situation this year.

“I want the trade deal to happen. I don’t want the presidential election year politics to impinge on the issue. Right now, there’s just too much uncertainty and not enough information on that trade deal.”