The bearish beat in oilseeds markets continued into October. The USDA elevated the U.S. soybean yield slightly, to another new record, in their October estimates. The USDA also released their first estimate of 2018 sunflower yields.
The sunflower yield estimate isn’t a new record, but it’s very close to a record at 1,560 lbs/ac. That is down 56 lbs from last year, but is still the fourth largest yield on record. Total U.S. sunflower production is projected to be down 10% from 2017. Harvested acres were lower than a year ago and also lower than the June estimate. Sunflower prices have been stable throughout the big decline in soybean prices.
The soy complex is still suffering from the lack of any progress in trade talks with China. If anything, the situation has gotten worse with no face-to-face talks presently scheduled.
China has been focused on buying soybeans from Brazil, even though U.S. soybeans are now priced more than $2.50 a bushel below Brazil. This steep discount in the price for U.S. soybeans has, as expected, shifted demand from other soybean importers to the U.S. China isn’t getting a “deal” because of the tariffs, but the rest of the world is certainly benefitting from the big drop in prices.
Total U.S. soybean export sales as of the middle of October stood at 20.2 million metric tons (MMT). That is down from 23.3 MMT at this time a year ago. Remember that the U.S. and Brazil account for approximately 82% of the world’s soybean exports. Brazil can’t provide all of the world’s soybeans.
The China trade dispute has certainly been the most obvious problem with oilseeds markets, but U.S. and world ending supplies of soybeans were heading to new record high levels with or without the trade issues. More planted acres combined with record yields in Brazil and the U.S. are the real culprits.
This is also the first marketing year ever that the USDA is forecasting no increase in the volume of China’s soybean imports. China’s increasing appetite for soybeans has been able to keep pace with increasing world soybean production until this year. China says it will reduce soybean imports to 83 MMT, down another 10 MMT from the USDA’s October estimate. That is an extremely aggressive plan to offset soybean meal as a protein source in livestock feed with other substitutes. China’s soybean imports from January through September were just slightly below the year-ago level.
World corn and wheat ending supply numbers, on the other hand, are declining. World corn supplies are declining quickly because of a steep drop in China’s corn reserves and smaller 2018 corn crops in Brazil and the EU because of drought. World wheat supplies are declining because of crop production problems in every major wheat exporting country except the U.S. Wet weather during harvest has also caused quality losses in Canada, Russia, Poland and Germany.
U.S. corn exports are very strong because of declining supplies in other countries. U.S. corn export sales are running about 60% ahead of last year at this time, and we’re not quite two months into the 2018/19 marketing year. The tightening in world wheat supplies has yet to be reflected in more U.S. wheat export sales. In fact, U.S. export sales are running about 25% behind last year’s pace even though the USDA is forecasting an increase. It is expected that the pace of U.S. wheat export sales will accelerate quickly from November/December forward. Prices should move higher when and if that export pace starts to improve.
The USDA’s October reports were not quite as bearish as expected. The cold and very wet start to October (with heavy snow across parts of eastern North Dakota) has slowed corn and soybean harvests and probably resulted in yield losses, especially for soybeans. There has also been some chatter that Brazil’s farmers might not increase soybean plantings as much as expected. Most of Europe and all of Australia are still battling droughts. Central Argentina is also extremely dry. There are many indications that perhaps prices have dropped enough. The real key, however, will be future of U.S. and China trade.
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.