Todd's Take

Soybeans and the Phase-One Agreement

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
Connect with Todd:
The continuous weekly chart of November soybeans shows prices have turned lower from new one-year highs since the phase-one trade agreement with China was signed. The agreement should result in increased purchases from China, but possibly not until later in 2020. (DTN ProphetX chart)

I admit, this is a bit odd for a market analyst who is constantly being asked where prices are headed, but between you and me, I don't like making predictions.

Please understand, I put a lot of effort into making predictions and estimates because I know many are taking my words seriously and I want to do right by our customers.

It's not the embarrassment of possibly being wrong that I don't like as much as the concern that some will only focus on the prediction itself and not try to understand the factors that go into it. The real value of good analysis comes from understanding the key factors so that one knows how to adjust to the surprises that inevitably come along.

For example, I'm pretty sure the Kansas City Chiefs and San Francisco 49ers have a game plan ready for how they expect the Super Bowl will go next Sunday, but I also suspect the coaching staffs are preparing plans B and C just in case they run into a surprise.

In the same way, I'd like to offer an early outlook for soybean prices in 2020, now that the phase-one agreement with China has been signed. This is not a vision to be carved in stone, but an early expectation that could require adjustments along the way.

If you read Todd's Take from Jan. 16 (…), you know China agreed to buy $36.5 billion of U.S. ag products in calendar year 2020 and $43.5 billion more in 2021.

The one catch that makes the agreement tricky is that both parties acknowledged China's purchases will be based on "commercial considerations." Apparently, China does not want to be obligated to making any purchases that are not priced competitively with other countries.

Balancing those two aspects of the agreement is likely to make for an interesting year of U.S. soybean export activity. As of Thursday's close on Jan. 23, FOB soybean prices for March were priced 26 cents per bushel lower in Paranagua, Brazil, than at the U.S. Gulf. The anticipation of a big, 4.52 billion bushel (bb) soybean crop in Brazil has already started pressuring Brazil's prices.

Brazil's soybeans aren't harvested yet and this week's forecast for heavy rain across northern Brazil will introduce some delay. Barring significant crop loss at harvest time, China will likely soon be buying soybeans from Brazil based on "commercial considerations."

For that reason, it is difficult to imagine China buying much more than 100 million bushels (mb) of U.S. soybeans for the rest of 2019-20, going by the terms of phase one. USDA is currently estimating 475 mb of U.S. ending soybean stocks for 2019-20, so even modest purchases would help reduce the U.S. surplus, but sizeable purchases early in 2020 do not seem likely.

In terms of prices, it will be difficult for soybean traders to see much bullish evidence for U.S. soybean prices early in 2020 without some weather surprise. I expect August soybean futures will stay near $9.50 a bushel, the way they have the past four months.

The final four months of 2020 is the time of year when China normally turns to the U.S. for soybeans and that is when I would expect to see the bulk of China's phase-one soybean purchases this year. In 2017, before the trade dispute began, China bought $24.0 billion of U.S. ag products and soybeans comprised 51% of the total.

As I wrote last week, it is not practical to expect China to spend half of its phase-one commitment on soybeans in 2020 -- an amount that could buy over 1.6 bb of soybeans. Provided the U.S. has a decent soybean crop in 2020, a more modest total of 1 bb would be significantly bullish for U.S. soybean prices and put new-crop prices back near $10 or more.

The real bullishness of the phase-one agreement is likely to become more evident at the beginning of the 2020-21 season and the size of the next U.S. soybean crop will also play a big part by then. Knowing it could be difficult for new-crop soybean prices to rally at harvest time, we may not see new-crop soybean prices sustain trading above $10 until January 2021.

Again, the expectations above are sketched in light pencil and there are a lot of moving parts that could change along the way. After the trials and tribulations of 2019, I have a feeling many will be relieved to just get crops planted this year.

Best wishes for what promises to be an interesting new year.


Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.

Todd Hultman can be reached at

Follow him on Twitter @ToddHultman

(BE/CZ )

Todd Hultman