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Soybean WASDE Weekend Thoughts


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WASDE Thursday came as a blow to the soybean market as analysts across the board missed the mark. 2018/19 US soybean ending stocks came in at a record breaking 580 million bushels however stocks to use ratio of 13.7% is less threatening then a record 580 million bushels. 2006/07 ending stocks stood at 574 million bushels, and previous record, had a stocks to use ratio of 18.62%. Growing demand is on our side in this bearish environment. Rarely do low prices result in demand damage.

Being on the topic of demand, the USDA slashed US 2018/19 soybean exports by 250 million bushels; the equivalent of 5.8% of expected US production. This likely was the USDA ripping the band aid off in one swipe but leaves the question of, is it possible? Will China be able to find new sources or alternatives to the massive hunger for soybeans? The squeeze may be possible but it will come at an expense to them as well. Brazil as we know is now Chinas primary soybean market and Brazil knows that too! With soybeans trading roughly $1.50 above the US market, China will be forced to pay that premium and/or tariff in order to meet their needs.

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Unfortunately for China, in the short term outlook, there is very little maneuvering they can do without actually reducing demand or finding an alternative. While Brazil may be their darling, Brazil typically sells themselves out of soybeans, or at least to near pipeline levels. Even with the USDA raising Brazilian production to 119.5 MMT vs CONABs 118.88 still allows for an estimated 2.55 MMT (93.7 million bushels) and may even require imports to meet domestic and export demand. Add in the fact that Argentina, the worlds #3 soybean supplier, experienced a crop failure and would need to cut into their strategic reserve to satisfy China something they are reluctant to do.

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What options does China have? According to the USDA recent reports, it seems alternative feed stock isnt in the plan for China. Corn for feed consumption is forecasted to rise 2.0 MMT (78.7 million bushels) and increased wheat for feed consumption also up 2.0 MMT (73.4 million bushels). However, sorghum imports are now forecasted to fall from 4.7 MMT in June to Julys 2.0 MMT with 0.9 MMT less in US sorghum exports. Even their fledgling attempt to raise domestic soybean production with an estimated increase in planted area by 250,000 hectares a drop in the bucket.

Once alternatives and new sources are depleted, there isnt much that can be done other than simply using less and making due. This is where China is likely to have the upper hand. With internet/social media/etc limited to the Chinese population and a strong hand from the government, they are not concerned about elections and dont tolerate public dissent. Just as in a staring contest, whoever blinks first loses and the Chinese people are likely willing/able/no choice to suffer longer than then the US which has mid-term elections coming fast. While I wouldnt put it past a communist government to push that pain onto its people in order to win the long game which will likely cause true demand loss for the US markets as other countries such as Brazil and Argentina ramp up production. Worse yet is the renewed incentive for China to continue to heavily invest in their Silk Road Economic Belt and encompasses much of Asia, Europe and extending now into Africa a place yet to be developed; similar to Brazil decades ago which could spell trouble for years to come.

In either case, short term or long term, while it appears to be bleak, demand is hard to lose at such low prices and weather will continue to provide opportunities through growing season, it just may require patience now for the market to figure out the short term.

Interested in learning more about my market outlook or strategies currently in place? Give me a call directly at 312-277-0119 to chat or shoot me an email at bgrossman@zaner.com. In the meantime, sign up for our Ag Hedge Newsletter and follow me on Twitter @AgHedgeGrossman

Brian

Brian Grossman

Market Strategist

Zaner Group, LLC Ag Hedging

(312) 277-0119

bgrossman@zaner.com

@AgHedgeGrossman
www.zaner.com

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About the author


Brian is a marketing strategist with Zaner Ag Hedge Group.  He grew up in Linton, North Dakota; born in 1988 and raised on the family farm.  He attended North Dakota State University and graduated in 2010 with a degree in Agricultural Economics with a focus on commodity marketing as well as a minor in Crop and Weed Science.  After graduating he returned to the family farm for the next five years before pursuing a career in commodity marketing.  Brian works with grain and livestock producers and end users of all sizes across the United States helping them develop risk management strategies. As a former producer who hedged through Zaner, Brian brings a unique perspective with vast experience on the client side of this industry. 

Feel free to visit with Brian about any marketing needs or thoughts at (312) 277-0119, bgrossman@zaner.com or follow him on twitter @AgHedgeGrossman

---

Brian Grossman

Market Strategist

Zaner Group, Ag Hedging

(312) 277-0119 -- Direct Line

bgrossman@http://zaner.com/

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