Big yield potential tempering soybean demand news

By Todd Hubbs, University of Illinois Department of Agricultural and Consumer Economics

The prospect of an above-trend soybean yield in 2020 appears high and creates headwinds for soybean prices. USDA projected the national soybean yield at 49.8 bushels per acre in July. Better crop ratings point to significant improvements in this year’s crop.

Cooler and wetter weather across large areas of the Corn Belt holds the potential for ratings improving even more as we move into the critical period for soybeans in early August. While many areas saw advances in ratings, some key states show greater than 15% of acres in various levels of drought conditions. Iowa, Nebraska, Michigan, and Ohio all meet this criterion.

An August soybean yield above current trend projections seems likely and only the magnitude remains in question. Personal yield forecasting models currently project national soybean yield at 51 bushels per acre. If a yield of this magnitude came to fruition, 2020-21 marketing year ending stocks move well above 500 million bushels under current USDA consumption and acreage projections.

The prospect of growing supply places added emphasis on consumption. Exports, in particular, require growth in shipments. Any discussion of U.S. soybean export potential eventually ends up focusing on Brazil and China. Brazil’s soybean production came in at 4.63 billion bushels in the 2019-20 crop year. China bought large amounts of soybeans from Brazil in the first half of 2020 to support a recovering hog herd.

At over 1.6 billion bushels, Brazil’s shipments to China supported record export totals. Exports in July slowed a bit from Brazil, but Chinese demand puts in place another strong month for Brazilian soybean exports. Supplies in Brazil appear less robust than in previous months and holds promise for expanded U.S. exports moving forward.

China’s purchases of U.S. soybeans began in earnest in July. Outstanding sales through July 23 totaled approximately 560 million bushels of soybeans for the current and next marketing year. An additional 14 million bushels reported by the Foreign Agricultural Service reporting program can be attributed to China since the last sales report. After a string of Chinese sales recorded in July, there was a noticeable pullback in soybean sales late in the month. While large corn sales came through, the lack of soybean sales causes some concern.

An uptick in geopolitical tension between China and the U.S. looks unlikely to cool down anytime soon. The impact on soybean purchases remains an active area for speculation. While soybean exports stay on pace to hit the current marketing year estimate of 1.65 billion bushels, the prospect of reaching 2.05 billion bushels in 2020-21 rests on Chinese buying in the fall. Tighter Brazilian supplies and China attempting to meet trade deal commitments offer the promise of large shipments as we move into the next marketing year.

Monthly crush totals appear set to drop for the third straight month when the USDA releases the June crush report on August 3. Despite lower monthly levels, soybean crush remains healthy and maintains a pace to hit the current USDA estimate for the 2019-20 marketing year of 2.155 billion bushels. Estimates of monthly soybean crush indicate total soybean use through June near 1.805 billion bushels. Crush during the last two months of the marketing year needs to come in at 350 million bushels to reach the USDA estimate, slightly below last year over the same period.

The USDA currently projects a 488 million bushel increase in soybean consumption over the current marketing year for 2020-21. Based on improving crop conditions, soybean prices need every bushel of consumption currently projected. While recent soybean sales provide support, significant uncertainty remains regarding the soybean export outlook. The potential for higher yields in the U.S. and growth in South American production look to temper soybean price rallies.

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