Now might be the time to put some soybean sales on the books while the market is temporarily distracted by Argentina’s troubles, says an analyst.
Rich Nelson, chief strategist with Allendale Inc., believes prices will fall when the market shifts from worrying about Argentina’s lingering dryness to focusing back on U.S. supply and demand fundamentals.
Those fundamentals do not look good at all because of a lacklustre 2017-18 export program.
“We’ll have to recognize the severe problems we do have on exports,” he said.
“We’re too far in the marketing year to ignore it any longer.”
U.S. grain companies shipped 1.626 billion bushels of soybeans through Feb.1, down 12 percent from the previous year.
Part of the problem is the poor quality attributes of this year’s crop. The average protein content is 34.1 percent, tied for the lowest level since 1986.
The U.S. Department of Agriculture lowered its export forecast by 65 million bu. in its January report and then dropped it another 60 million bu. in February.
Nelson believes it needs to fall another 50 million bu. before the end of the year, which means larger carryout and lower prices.
He believes the November 2018 soybean contract will fall to $8.60 per bu. by the time the summer rally is over and the fall lows set in. That is down from $10.19 per bu. as of Feb. 13.
And that is without the recent disturbing news out of China.
Bloomberg is reporting that China’s ministry of commerce is considering launching an anti-dumping and anti-subsidy investigation of U.S. soybean imports.
It has already launched a similar investigation into U.S. sorghum imports in response to the U.S. putting duties on imported solar panels and washing machines from China. The news caused sorghum prices to drop 25 percent.
Chuck Penner, analyst with LeftField Commodity Research, is not surprised China is talking retaliation with soybeans. It typically accounts for 60 to 65 percent of the U.S. export program.
“This is the time of year, though, when they typically shut off most of their purchases from the U.S. anyway,” he said.
China typically switches around now to buying Brazilian soybeans as harvest progresses in that country. Just last week China cancelled 455,000 tonnes of U.S. soybean shipments.
He believes China is going to wait and see how Argentina’s crop turns out before deciding whether to shut the U.S. out completely and rely on South American product.
“If the Argentine crop continues to shrink, they may back off that a little bit,” said Penner.
If China does block U.S. imports, it will put further downward pressure on U.S. soybean prices because while China is in the process of switching to sourcing Brazilian soybeans in a normal year, it would augment those sales with continued buying from the U.S.
“It will cause some ripples in the market if it happens, no doubt about that,” he said.
That will in turn drive down Canadian soybean prices, but it could boost Canadian exports to China, which would help tighten up supplies.
He does not believe it will affect canola prices.
“Canola is moving to its own beat, largely,” he said.