Low-priced beans from the U.S. are cutting into traditional canola markets, and it could take three years to resolve
WASHINGTON, D.C. — It could take three years, or longer, for the United States to get rid of its glut of soybeans.
The U.S. Department of Agriculture chief economist, Robert Johansson, delivered this bearish message Feb. 21 at the USDA Agriculture Outlook.
As of early 2019, the stocks-to-use ratio of U.S. soybeans was about 23 percent, much higher than a more normal level of 10 percent
“To get back to 10 percent stocks to use, we would expect to take a number of years,” Johansson said, speaking to about 1,500 people at the USDA event.
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American stocks of soybeans spiked in the last year because of the country’s trade dispute with China. Last year, U.S. President Donald Trump imposed tariffs on hundreds of Chinese products and China responded by slapping tariffs on U.S. goods, including soybeans.
China is the world’s largest importer of soybeans. In 2017 it bought more than US$13 billion worth of soybeans from the U.S. That figure dropped dramatically in 2018 because of the U.S.- China trade battle.
The trade disruption and boom in U.S. soybean stocks is not new information, as its been widely discussed during the last nine months.
Johansson’s remarks indicate the glut of soybeans could weigh on the market for several years.
The USDA forecasts that the stocks-to-use ratio for soybeans won’t return to 10 percent until the 2022-23 crop year, meaning U.S. soybean prices could be depressed for a long time.
“Producers are holding on to them right now, looking for a better price,” Johansson said. “Prices are going to recover…. But right now we forecast prices to take at least three years to get back to the levels we saw last year.”
The bearish forecast for soybeans could be negative news for canola growers in Canada because soybean futures and canola futures typically move in unison.
Plus, the U.S. has been diverting soybeans to markets other than China, cutting into traditional sales for Canadian canola. Oilseed crushing plants in places like Mexico, the United Arab Emirates and Pakistan have switched from canola to relatively cheap U.S. soybeans, said David Mielke, a market analyst with Oil World, a German firm and research organization specializing in the global oilseeds market.
“The question is: how can (canola) regain some of the market share in those countries?”
In some good news for canola, the U.S. will have a smaller soybean crop in 2019.
At the Washington meeting, the USDA forecast American soybean acres at 85 million, down 4.7 percent from 2018.
As well, American farmers had a record soybean yield of 52.1 bushels per acre in 2018. Jennifer Bond, USDA economist, expects yields to pull back to trendline in 2019.
“A return to trend yields … (suggests) we’re going to have an eight percent reduction in (soybean) production.”
A cut in production will help reduce some of the oversupply, but the problem is not going away soon.
“Despite that production cut we’re anticipating to have record high supplies,” Bond said. “There is some good news in that we’re expecting crush to increase…. And we’re expecting a return of exports. That’s expected to rise 150 million bushels, in the (next crop year).”
As for other crops, Johansson shared a few acreage and price estimates at the USDA outlook in Washington:
- U.S .corn acres are forecast to hit 92 million in 2019, up about three million from 2018.
- Corn prices are estimated to be US$3.65 per bu., up 1.4 percent from last year.
- Soybean prices are pegged at $8.80 per bu., up 2.3 percent.
- All wheat acres are 47 million, down 1.7 percent. Wheat prices are forecast at $5.20 per bu., up one percent
