Chinese imports continuing to drive U.S. soybean prices – for now

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You can’t blame corn – and, to a certain extent, soybean farmers – for looking at 2014 with a little fear and trepidation. For the first time in a long time, the corn market is looking at large rather than dwindling carry-in stocks, and Brazil and Argentine seem to be getting their soybean production back on track.

“This is a unique year,” says Sterling Liddell, senior vice president for Food and Agribusiness Research and Advisory for Rabo AgriFinance. “This is the first year in the last six or so years with the exception of 2009 that corn has a large carry that we’re moving into next year – about a billion bushels or so, and that’s having an effect on the markets.

Dr. Liddell was interviewed following a presentation by Rabo AgriFinance specialists at a lunch held by the company at the Mid-South Farm and Gin Show in Memphis, Tenn. Liddell discussed the grain and cotton markets and RAF's Rob Sabo talked about the financial markets.

“There is some support for the corn price because we have a strong export market right now and a lot of interest in U.S. corn. But at the same time once corn starts flowing and getting out of this winter condition that has held a lot of it captive, we should start to see corn prices decrease.”

On the other hand, the U.S. has had a tight situation with soybeans. With China being very interested in U.S. soybeans and importing U.S. soybeans at a record rate. The latter has supported prices because South American producers have not been able to come into the market and offset U.S. shipments to China.

“Now on a global scale, we’re probably going to build stocks this year fairly significantly, and that’s really putting the very tight U.S. stocks against the future of very loose stocks globally,” said Dr. Liddell. “Our expectation is stocks will remain tight in the U.S. As long as China continues to buy soybeans we should see support for prices.

“But over the long term, into quarter two when we start to see soybeans coming out of Brazil and Argentina then we are likely to see a collapse in soybean prices.”

Farmers may not get much help from the demand for ethanol, the renewable fuel which continues to face challenges on a variety of fronts. Equipment issues – which prevent retailers from selling fuel that contains 15 percent vs. 10 percent ethanol - and political issues may conspire to keep ethanol usage at 10 percent of the total fuel consumption in the U.S. That would equate to about 13 billion gallons of ethanol vs. the 14.4 billion called for in the Renewable Fuel Standard.

Those issues are not unlike those faced by soybean producers in Brazil who continue to face huge transportation difficulties in transporting their crops from areas like Mato Grosso, the Midwest of Brazil, to ports in the north or east of Brazil.

“Brazil has a lot of logistics problems,” says Liddell. “Some of those have gotten better from last year, but there are still some serious issues. Moving the grain from deep inland to the ports is very expensive. It costs about as much to take it from Mato Grosso to their ports as it does to take soybeans from the Midwest in the U.S. all the way to China.

“It’s also raining in Mato Grosso right now, and that’s slowed down harvest,” said Liddell, who was interviewed on Feb. 28. Eventually, we’ll see these soybeans getting to March, but it will more likely be at the end of March or the beginning of April.”

In contrast, Argentina has a good infrastructure and can move soybeans more easily. But Argentina sells more products – more soy oil and soy meal – than whole soybeans because of their tariff system for exports.

“Farmers in Argentina have been reluctant to sell primarily because of the devaluation of the pesos. Soybeans are sold in dollars. You collect your money in pesos, and so the soybeans become a natural currency hedge so they hold on to them as long as they can.

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