Soybean futures looked for most of 2019 set for a third successive year of price decline in Chicago, weighed by the dent to US demand from the country’s trade dispute with China, the top importer of the oilseed.
The spread through China of African swine fever was hardly a help either, in bringing a large cut to the hog herd, and undermining the country’s demand for feed ingredients such as soymeal.
However, futures staged a recovery in December, spurred by signs that the two countries were poised to sign an interim trade deal which would, reportedly, see China buying a stack of US agricultural goods, of which soybeans were seen as likely to account for a huge proportion.
Will soybean futures maintain their recovery into 2020? Or has the benefit from a trade deal already been factored in? Will the late-2019 rally spur extra US soybean sowings and a price-negative production rebound?
Leading commentators give their views.
The article below has been updated with Fitch Ratings comment.
Mike McGlone, Bloomberg Intelligence senior commodity strategist
Soybeans have more work to do - notably versus corn - for a sustainable price recovery, in our view.
If past performance and the 100-week moving average are guides, the oilseed’s trend and path of least resistance remain down.
The deep discount of the December 13 price about $9.20 a bushel, versus the halfway mark to the 2019 low and 10-year average of $11.22, nudge mean-reversion potential to the upside.
Typically highly correlated, corn and wheat should provide guidance for soybeans.
In November, the US Department of Agriculture gave a first impression of its expectations for 2020. It envisages a 5% larger acreage being planted with soybeans in the US – roughly the amount that had originally been planned in 2019 but was or could not in fact be achieved.
This points to a higher US crop in 2020, though only in about 12 months – during which time much can happen, including at the political level.
One example is what happens next with the spread of African swine fever (ASF) in China, which plays an important role when it comes to demand for soybeans for feed in the world’s largest pork producing country.
The deficit on the soybean market and higher US exports – including to China, be it with or without an explicit agreement – lead us to expect rising soybean prices.
That said, global stocks are falling but from a record level, so there can also be no talk of any shortage.
The price rise is therefore likely to be only moderate. We expect $9.50 cents per bushel by the end of 2020.
Soybean prices will remain in their ongoing upward trend channel over the coming weeks, but prices will struggle to break above resistance at USc1,000/bushel over that time.
In addition to long-running issues, including the US-China trade war, the African swine fever (ASF) outbreak and lower year-on-year soybean crush margins, more acute geopolitical concerns have come to the fore, which could weigh on risky assets.
African swine fever… has caused us to signiﬁcantly revise down our Chinese soybean consumption forecasts. We now see consumption declining by 8% to 104m tonnes in 2020.
However, outside of China and especially in agriculturally developed markets, soybean consumption growth will remain healthy.
The risks to our average price forecasts remain weighted to the downside.
A more aggressive depreciation in the Brazilian real would also force global prices lower as it would encourage Brazilian exports.
On the upside, more corn plantings, at the expense of soybean, in South America in the fourth quarter of 2019 and the first quarter of 2020 could see soybean prices increase as the two compete for acreage.
A potential easing of tensions related to the US-China trade war could boost demand for soybeans, especially if tariffs were to be reduced.
Our panellists expect soybean prices to increase in the coming months, likely in part on expectations of progress in US-China trade talks.
For the fourth quarter of 2020, panellists expect prices to average $9.53 per bushel. For the fourth quarter of 2021, panellists see prices averaging $9.68 per bushel.
Without the trade war and swine fever, our pricing models suggest soybeans at $9.80 per bushel… given global production declines of 18%.
Across grains, both 2019-20 US yields and export expectations have repeatedly been cut in recent months.
Delayed plantings in spring, a cool summer and excessively wet autumn pulled USDA… soy production from 4.15bn bushels to 3.55bn bushels since May. In turn, stiff competition from South American soy… has worsened the demand outlook for 2019-20.
African swine fever will cause a structural decline in feed demand from China even with a resolution of the trade war.
Without substantial supply issues due to weather conditions, we expect soybean prices to remain range-bound for the year.
Our latest balances show a decline in 2019-20 world inventories relative to our September quarterly update, for sugar, corn, soybean, palm oil and cotton.
The largest adjustment was for soybeans, down 5% quarter on quarter, led by an improvement in crush demand and reduction in US production.
Looking into 2020-21, world inventories are projected to continue tightening year on year after an extending period of price weakness has weighed on production potential.
Our 2020 Chicago soybean price forecast is largely unchanged over the quarter at $9.43 per bushel. Looking into 2021, we expect prices to trade at an average of $9.60 per bushel.
In our extended truce scenario, China waives US soybean tariffs for state-owned companies and makes reserve purchases to the amount of 7m-8m tonnes per quarter through 2019-20; in exchange, the US rolls back tariffs from current levels.
Chicago soybeans test $9.70 per bushel, as revived exports (+4% year on year) and domestic crushings (+1% year on year) combine with the poorest US harvest in six years to deliver a 2019-20 US balance sheet contraction of 59%, to four-year lows .
Concurrently, global soy demand expands by 2% (versus 1% last year), as China enjoys a nascent feed demand recovery from ASF (from 82 .7m tonnes to 87m tonnes), and the US, South America, and EU export more animal protein.
2019-20 global production is seen down 6.3%, cutting global stocks-to-use from a record 32% to 26%.
In the coming year, Brazilian and Argentine soy farmers see their 2018-19 premium to Chicago reversed… with their largest buyer [China] largely absent.
In the US, conversely, farmers will respond to higher Chinese demand and lower stocks by increasing 2020-21 acreage to 87.5m acres (+10 .8m acres year on year).
University of Illinois
The progress of trade negotiations remains the prime driver of soybean price potential.
World import projection for soybeans sits at 5.46bn bushels, up 103.6m bushels over last year. Import growth outside of China accounts for a mere 13.2m bushels of the total.
If a trade deal comes into place, the specific terms of the agreement remain crucial. A guaranteed increase in Chinese imports of US crops seems destined to impact international competitors.
Export expansion to non-Chinese markets may whither and mitigate price gains as Brazilian exporters look to move abundant projected crops.
The competition will be intense for the remaining soybean markets without a general economic expansion in the world to boost soybean demand in 2020.