Soybeans are often called the great liars, a reputation they get because sometimes the crop looks tremendous in the field, but then fails to yield as much as expected. On the other hand, the yield is sometimes very surprising compared to how poor a soybean stand might look.
It’s for this reason that soybeans can sometimes be the great wild card in our production estimates.
Soybeans have been the great favourite in 2014, with farmers across the huge North American Corn Belt shifting more acres to soybeans this year. Of course, that had as much to do with the decline in corn prices as with any strength in soybeans.
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The USDA has pegged American soybean acreage at 84.8 million acres in 2014, which is an 11 per cent increase from the year before and a new record. That new record wasn’t set by just a little bit, by the way. This crop is a whopping seven million acres bigger than anything we’ve seen before.
The expected harvested acreage in United States in early fall was set at 84.1 million acres with an expected yield of 45.4 bushels per acre, although these numbers will be massaged as we get further into harvest.
At the same time corn acreage was projected at 91.64 million acres, which is the smallest corn acreage since 2010, but still the fifth largest since 1944.
So soybeans are winning the day in the battle of the acres in the United States.
It is the same in Eastern Canada with Ontario soybean acres this year projected at 3.03 million acres, up from 2.495 million acres last year. The projected yield by Statistics Canada is 43.2 bushels per acre.
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Quebec has an estimated 836,500 acres, up from 710,400 last year, and the expected yield there is 43.5 bushels per acre.
As in the U.S., the great loser in this surge in soybean planting has been corn acres, as well as a smaller-than-expected wheat planting in Ontario in the fall of 2013.
New crop soybean prices have responded accordingly, based on the projected acreage, heading down to the $10-bushel range, which is clearly much lower than last year.
The great challenge for producers is to measure just where we are now with regard to the soybean market structure and prices. As we look toward the spring of 2015, will the soybean market need to bid aggressively to keep the acres away from the corn market?
Or will the corn market have to bid aggressively to take back all those soybean acres that have gone in at its expense over the last two years?
There are other questions too. Which underlying factors will be the key market determinants as we head into 2015? Will the corn market rebound, making it easier to take all those acres back from beans? And will the value of the Canadian dollar change everything?
As the 2014 production year comes to an end, much will depend on the actual soybean yield that comes out of the field. Yes, the USDA has spoken with its projected yield of 45.4 bushels per acre, but late-season diseases and the lack of rainfall may cause this number to drop.
Or, there is always a chance that this number will rise. Weather will remain the key.
With the total projected supply of 3.971 billion bushels of soybeans in 2014-15, USDA is projecting demand to be 3.541 billion bushels with ending stocks of 430 million bushels.
That ending stock figure is more than three times higher than the ending stocks of 2013-14 of 140 million bushels.
That statistic alone has contributed to the USDA projecting cash prices to American farmers from $9.35 to $11.35 a bushel, far below the $13 and $14 enjoyed by American farmers last year. With ending stocks that high, lower prices would seem to be in for the long term.
Of course any discussion about soybean prices in Canada has to involve the value of the Canadian dollar, which is currently trading at .9151 U.S., boosting basis values. As of early September, old-crop basis levels were approximately $2.75 above the November futures price, and new-crop basis values ranged from 25 to 35 cents over the November 2014 futures price.
The soybeans priced in Canada have a more direct connection to the U.S. dollar, making them very sensitive to foreign exchange. Any movement in the Canadian dollar can have a huge effect on cash pricing. In fact, the lower loonie in September 2014 has mitigated some of the price decline over the last year.
The Canadian dollar affects our cash prices greatly. However, often overlooked is the effect on grain futures prices by a change in the value of the U.S. dollar. The U.S. dollar is the world’s default currency and any appreciation in its value makes these commodities more expensive in the world’s currencies. On September 4, the U.S. dollar index reached a 13-month high in response to the European Central Bank cutting interest rates. If the U.S. dollar remains high, it will act as a drag on futures price appreciation.
The switch to soybeans was not and is not restricted to North America. As we all know, South America produces more soybeans than North America and it will be planting soybeans in October and November of 2014 for its upcoming season. While last year Argentina produced 54 million metric tonnes (MMT) and Brazil 87.50, in 2014-15 USDA is projecting the same 54 MMT crop in Argentina but boosting Brazil’s crop up to 91 MMT. It’s all theory now, but the spectre of big South American crops weighs on the market.
Darin Newsom, senior grain analyst for DTN/Progressive Farmer in Omaha, Nebraska believes 2015 could be a make-or-break year for soybeans. South American production is set to rise in 2015, making all producers so much more dependent on Chinese demand and the Chinese economy. There are logistics problems in Brazil as well as Argentina, but if all of these beans do come to market, it will have a significant negative impact on soybean prices.
Of course all this news sounds very negative for soybeans as we look into 2015. Many farmers follow their rotations closely, but the rise in soybean acres over the last year is very telling. Clearly, farmers also planned with their pocketbook.
Corn is much more expensive to grow, with simple variable costs of between $400 and $500 an acre.
After you pay those costs, fixed costs must be accounted for and there isn’t a lot left from $3.50-$4 corn prices. So strictly from an agricultural economic perspective, unless things change there will be a movement away from corn into soybeans in 2015.
At least, this is what it looks like now in the early fall of 2014. But this is agriculture, and we know that not everything stays the same.
While this year the United States had a very healthy-looking soybean crop, that may not necessarily hold true in South America this winter. Even though its crop potential is huge, you have to consider whether it will actually happen or not.
China remains an almost insatiable source of global demand for soybeans. Chinese demand has risen almost fivefold over the last 20 years and its imports now are over 70 per cent of the U.S. crop. However, it also imports many South American soybeans. This demand is growing and will continue to grow.
It is hard to imagine Ontario planting more soybean acres in 2015 than the record 3.03 million planted in 2014. Much will depend on wheat planting in the fall of 2014 and on any price strength in corn over the winter season.
The challenge for soybean producers is to take advantage of market rallies as the different market conditions shift into 2015. Demand for non-GMO soybeans remains strong.
The only constant in agriculture is change. That goes for the soybean market too.
Despite the bearishness of late 2014, there will be marketing opportunities ahead. Soybeans might be the great liars, but at the end of the day, they always tell the truth.
