Inside The Market

Cash soybean prices in the fall of 2018 traded roughly in the mid $7s, some of the lowest prices seen in 11 years. Aside from the difficulty of getting crops out in many areas where harvest conditions were excessively wet, the choices of what to do with those cheaper-than-usual crops were not pleasant.

I am glad to say DTN’s Market Strategies recommended forward cash sales in early 2018 when prices were much higher, but for those who made their first marketing decision in the fall, the choice was more of a survival reflex: Prices were too low at harvest, so store and hope for the best.

In this case, hoping for the best has not been all bad. Since DTN’s Soybean Index of cash prices hit a low of $7.12 on Sept. 18, prices rebounded and were in the low $8s near Christmas. A truce in trade negotiations with China and a willingness on China’s part to make at least some modest soybean purchases from the U.S. eased trade concerns, at least temporarily.

AID BOOST

USDA’s December 17 announcement that farmers would receive a second payment of trade aid under the Market Facilitation Program brought the total for 2018 soybeans to $1.65 a bushel and is a big help to growers. Price improvement to roughly $8.20 a bushel plus $1.65 in trade aid, put the new total well above $8.69 a bushel, USDA’s national estimate of what it costs to produce a bushel of soybeans.

While USDA’s checks helped save growers from the pain of low prices in 2018, it will be politically difficult to expect that kind of help again in 2019. The tough news for prices is that even if China and the U.S. negotiate a successful agreement by March 1 and China drops its 25% soybean tariff, the U.S. could still carry over a billion bushels of U.S. soybeans into the new 2019-20 season--a heavy amount that prior soybean markets have not experienced.

MULTIPLE FACTORS

There is plenty of uncertainty yet ahead in 2019, and we cannot forget that weather has saved agriculture from its excesses before. We also need to remember that world soybean demand continues to show impressive growth in spite of trade differences. However, if U.S. and Brazil’s weather is mostly favorable for a seventh consecutive year, even a good trade outcome with China could send cash soybean prices below $7 in the fall of 2019.

Early bearish outlooks for soybeans have been disproven before, so, once again, this will be a market to monitor as the new year unfolds. For new-crop soybean prices in 2019, the stakes in this winter’s trade negotiations with China are high.

Read Todd’s blog at about.dtnpf.com/markets.

You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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