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CHAMPAIGN, Ill. — Uncertainties surrounding the coronavirus, the election, U.S. and China relationship and trade deals make it nearly impossible to forecast the crop balance sheets.
“Any economist that tells you that they know what’s going to happen is flat out lying to you,” Todd Hubbs, University of Illinois agricultural economist, said to open the July 22 Illinois Soybean Association’s Agribusiness Management Program webinar.
Hubbs set the stage with a review of the U.S. Department of Agriculture’s July supply and demand estimates.
The USDA projects 2019-2020 ending stocks of 620 million bushels with a season average price of $8.55 per bushel and 2020-2021 ending stocks of 425 million bushels with a season average price of $8.50 per bushel.
“Ending stock look like they’re headed in the right direction after the huge (909 million bushels) number we saw in 2018-2019,” Hubbs noted.
The ag economist provided the following views of the soybean outlook as it currently stands.
On Acreage
Over the last five or six years principal crops, Conservation Reserve Program and prevent plant acres were in the 344 million, 346 million range. The shocker in the June acreage report was acreage came in about 5 million acres below where many thought it would be, and principal crop acreage is down to about 312 million acres. CRP is about 21.9 million acres.
When we got into June I think there was a lot more prevent plant done out west and maybe here out east, too, potentially on corn, and we saw that rally in early June in soybeans and I’m not so sure that rally didn’t buy a few soybean acres, not a lot, but some.
The soybean planted area in the June acreage report was 83.8 million acres, up 7.7 million after the huge prevent plant acres in 2019. Almost every major production state went up in acreage, which made a lot of sense when you think about what happened in 2019.
We might see a few more acres out there, but 83.8 million might be pretty close. We could be upwards of 84 million acres when it’s all said and done. Overall we’re looking at maybe harvesting 83 million acres of soybeans. They’re only up about 315,000 acres in the June acreage report from the March planting intentions.
On Yield
USDA has the average U.S. yield at 49.8 bushels per acre. We saw a little bit of weather premium come into the market after the acreage report where there were some ideas of hot dry weather through July and into early August and that’s faded as July is going on. Weather forecasting is a tough job, but I have never seen the weather change so much in the forecast as I have this summer.
It seems like every day temperature and precipitation levels are moving around all over the Corn Belt. The last few weeks there were projections for 90 degrees-plus weather in early August. That’s all faded away. We’ve had a lot of precipitation in some key growing areas all through the Corn Belt.
I’m at about a 50-bushel per acre estimate right now for soybeans. I wouldn’t be surprised if it came in above that if the weather continues the way it is. There have been some issues in parts of Iowa and Indiana and maybe up into the Dakotas, but these are isolated areas and I think for the most part soybean crops are look in pretty good shape.
On Supply, Demand
When we get to the actually projections, I’m basically where the USDA is at. You may see crush creep up a little bit, but not much. Exports might go up a little bit. In July USDA did lower the seed and residual significantly and that pushed ending stocks to over 600 million bushels for 2019-2020.
On the supply side there’s a potential for a few more acres and a very good yield that could be well above USDA’s current projection. I’m a little bit above USDA on supply projections (4.785 billion bushels compared to USDA’s 4.77 billion), but it could go up before it’s all said and done.
I have crush at 2.15 billion bushels compared to USDA’s 2.16 billion and for exports I’m about 100 million bushels below USDA. I hope I’m wrong about that. I would love to be really wrong about it. There’s just a lot of uncertainty right now.
USDA projects 2.05 billion bushels in exports for 2020-2021 and we have seen strong buying out of China for the marketing year and they’ve been going at a pretty good pace. About every day you see another export sales report coming through. I think there’s been around 360 million bushels sold thus far, but that’s a far cry from tipping over into 1.2 billion bushels projected to China. I’m not sure China is going to go back to the peak we saw in the 2016-2017 marketing year. I see them more at a little over one billion bushels from us. I hope it’s more.
Basically, in my opinion based on the economic growth that we’ve seen and all the issues with China that keep cropping up both geopolitically and with trade deals, I feel like USDA’s use estimates for 2020-2021 are more at the high end of potential rather than in the middle. I think everybody should sort of keep that in mind. It could be right. It could be low, but based on all the uncertainty with the economy in general and the world economy in general it feels like they’re incorporating a strong “Phase 1” trade buying which China’s got off to a good start and an economic recovery that looks a little bit stronger than from where we’re sitting right now to me.
Nonetheless, I’m at 550 million bushels of carryout for 2020-2021 and about $8.45 per bushel for average farm price for the U.S. (USDA has 425 million bushel ending stocks and average price of $8.50 per bushel.) Here in Illinois that would probably be $8.60 to $8.65 per bushel cash price for soybeans in most of Illinois, particularly in central Illinois and getting down south a little bit higher and in the north a little bit lower. But we’re talking $8.60 to $8.70 soybean prices under these use and supply assumptions.
On Marketing
We’ve seen basis sort of stabilize on old crop, so when we’re talking about old crop I don’t see basis weakening very much or strengthening very much at this point. The futures have been running down and I think might continue to do so.
If you think you’re in a place where you still have soybeans, you may be in a cash-selling position at this point this far in the marketing year. If you’re looking into moving into the 2020-2021 marketing year with your storage, I would seriously think about it. When we saw the November soybean prices bust $9 in July that was a sell signal in my opinion. I don’t know if we’ll touch that again.
With the acreage report being a bit more bullish than people thought, the weather premium and we have seen strong buying from China, all of that coalesced to push new crop soybeans in November up above $9. They’ve deteriorated significantly since then. So, we’re going to see new crop cash prices sideways near term.
If we see China begin buying in a big way in the fall and the crop doesn’t turn out to be as big as it’s looking like right now, I think we’re looking at basis basically flat here in central Illinois. You’re seeing it minus 25 and minus 30 depending on where you’re at that may be different. If the crop starts to build more and get bigger, and we’ll find out more in the August production report, you could see basis weakening and futures down.
I would think very hard about it if you’re thinking about marketing new crop, where we’re at these days, if we see another rally on buying out of China and it’s a significant rally and maybe the crop doesn’t come out as big, you may want to think about edging across the August crop production report. I would take that into consideration.
I’ve always said have a marketing plan if you can build one. It doesn’t have to be complex, but you need to have targets for both old and new crop and I like the idea of having windows. If you blow through a target and let it go and keep moving forward.
I do think any kind of rallies these days you can get close to a kind of profitable price. I’m not saying sell everything, but price something. Work with a marketing adviser if you’re not comfortable with it and be active and pay attention.