By Ben Brown, Program Manager for the Ohio State University Farm Management Program
For the last few years, soybeans have provided a per acre return to producers greater than corn. Thus, acreage shifts to soybeans have ensued across the Midwest. The ratio of new crop soybean to corn prices from November 2017 to April 2018 traded at 2.5:1. Historically a ratio of 2.5:1 or greater signaled that acres would continue to move from corn to soybeans and that the expectation was for more soybean acres in 2018. However, in March producer signaled that they intended to plant 1 million fewer acres than 2017. With a trend yield of 48.5 bushels per acre, the expected soybean crop would be the third largest crop on record behind the record set in 2017 and the third straight year over 4 billion bushels. Weather will be the largest factor over the summer months to the final production value, but expectations are for another large crop. The carry-over from 2017 was also high creating an expectation that the 2018 supply will be 2.5% higher than a year ago.
Demand for soybeans and soybean products continues to be strong. Increases in livestock numbers, especially pigs, has driven demand for soybean meal. Increases in crude oil prices could encourage use of biodiesel and expand soybean crush further. Chinese per capita income is strengthening and the demand for pork continues to grow internationally. Exports of U.S. soybeans to China have tripled in the last decade, but since 2012, Brazil has been the largest supplier of soybeans to China. Nearly 60% of U.S. soybean exports head to China, and the strength of that market will continue to influence U.S. soybean demand. Exports are projected higher in 2018, but Chinese tariffs could shrink Chinese demand of U.S. soybeans. The drought in South American weakened Chinese leverage over the U.S, as production in South America finished below expectations. Overall, the growth in soybean use appears strong at a 5.5% increase next year, but international trade and weather provide large uncertainties looking forward.
Soybean prices in 2018 are expected to be similar to 2017 with the potential for a rally in late June, which would set up an opportunity for producers to contract grain. Trade uncertainty in the Chinese market could change the outlook for soybean profitability for both old and new crop soybeans. Weekly sales numbers will be an important indicator of the ending U.S. export value.
Access to Brown’s full report with information on poultry, eggs and wheat can be found here: https://aede.osu.edu/sites/aede/files/imce/images/Current%20Commodity%20Situation%20and%20Outlook%20for%20Ohio%20Report%20.pdf.