Soybean Prices Hit Two-Year High, Buoyed by Chinese Demand

Date: Monday, September 21, 2020
Source: Wall Street Journal

Soybean prices have surged to their highest levels in more than two years, driven by heavy buying from Chinese importers.

Most-active soybean futures trading on the Chicago Board of Trade closed Friday at over $10.43 per bushel, their highest level since May 2018. Soybean prices have risen more than 16% since the start of August.

A key cash crop for U.S. farmers, soybeans fell 16% to start the year before heavy Chinese buying spurred a rebound. Sales of soybeans to China for the marketing year that began Sept. 1 currently tally 17.4 million metric tons, already more than last year’s total of just over 17 million metric tons, according to data from the U.S. Department of Agriculture. Last year’s figure was already 20% higher than the previous year.

“Demand from China has been immense; they are on pace to buy more beans than they’ve ever bought before from the U.S.” said Sal Gilbertie, head of agricultural commodity brokerage Teucrium Trading LLC.

China’s rising demand for soybeans comes as the country attempts to rebuild its domestic hog herd after African swine fever devastated its swine population last year. China’s pig stocks are up 13% from this time last year, according to data from the country’s agricultural ministry. Soybean meal is commonly used as livestock feed.

The wave of buying is a relief for the U.S. agricultural sector, which has worried tensions might upend the phase-one trade agreement reached between the two countries in January. Under the terms of the deal, China would purchase roughly $200 billion more of U.S. goods in 2020 and 2021, which includes agriculture.

Before China began its buying in earnest, prices for U.S. row crops had been weak this year. Over the summer, the USDA forecast record crop yields for both corn and soybeans, with domestic and export demand viewed as questionable amid the spread of coronavirus world-wide.

Chinese buyers could purchase as much as 100 million tons of soybeans from outside sources this marketing year, with the U.S. being a significant source, said Dan Cekander, head of DC Analysis LLC.

For U.S. farmers, the upswing in demand could make their acres much more profitable. In August, economists with the University of Illinois projected that with an average price per bushel of $8.25, farmers in Northern Illinois stood to make roughly $19 per crop acre. If prices stay around the $10 mark, that number could grow by more than fivefold, to $96.50 per acre, said Scott Irwin, head of the school agricultural marketing department.

A big question, however, is if prices can maintain their elevated level. The purchases announced by the USDA aren’t final until the grain is physically shipped to its destination, meaning buyers can cancel at any time before then.

“China has the ability to book all they want for agriculture products, but we need to see if they actually take the product,” said Terry Reilly, senior agriculture analyst with Futures International LLC.

Diplomatic relations between the U.S. and China have deteriorated over the summer, with both sides closing consulates and expelling diplomats. This week, former Iowa Gov. Terry Branstad stepped down as the U.S. ambassador to China.

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