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Soybean Fireworks Expected In Early January USDA Report

The soybean export pace is troubling.

Soybeans produced an end-of-the-year bounce today, as a small round of profit taking supported the market.

The front month January contract ended up settling at $9.51¾. This was down 44¾¢ from where the January 17 contract settled on the last trading day of last year.

It should be noted that the current year’s ending stock number is projected to come in at 445 million bushels with stocks to use coming in at 10.3%. This year’s stocks numbers are lower than last year on the December USDA report when stocks were projected to come in at 480 million with stocks to use at 11.7%.

In theory, the lower stocks-to-use this year should translate into higher prices, but that isn’t currently happening. The market is not trading USDA’s stock numbers because we all suspect they will be raised due to the poor exports the U.S. is currently experiencing (more about this below). Many are discussing +500 million bushels stocks numbers due to poor exports. Also, some would suggest last year’s winter rally in beans was due to SA weather concerns.

Argentina is currently experiencing some dryness issues but many in the trade are taking up the potential for another record crop in Brazil which will offset much of the Argentina losses.

Today’s soybean export sales totaled 1,055,984 metric tonnes (974,696 2017/18). This was within the 800,000 to 1,500,000  the trade was expecting. The USDA’s whole-year goal for exports is 2.225 billion bushels. That would be 2% over last year’s record if achieved.

Current sales, at 1.489 billion, are running 14% under last year at this time. We have only sold 67% of USDA’s whole-year soybean export goal by this point. The five-year average pace is 82%. We fully anticipated the USDA will be lowering their bean export number on the January 12 report. The question is by how much.

With China changing their foreign matter tolerance level for U.S. beans, it could make it more challenging to sell to the biggest bean buyer in the world.

Last week, China announced that it was reducing the amount of foreign material allowed in shipments of U.S. soybeans to them as of January 1. The old quality specs for No. 2 yellow beans were 2% foreign material. The new Chinese tolerance level is now 1%. It is estimated that it will add at least 15¢ a bushel in cost to U.S. exporters to meet the new standard.

A Reuters news story pointed out that half of the 27.5 million tonnes of U.S. beans exported to China this past year contained more than 1% of foreign material, making it clear to the trade that this could become a big issue for exports.

Argentina is now forecast for up to 1 inch of rain in the No. 1 and No. 3 grain states for both the one- and two-week forecasts.

If the rains do not materialize as anticipated over the holiday weekend, we could see today’s bounce continue into the new year. The updated maps will dictate how we open next Tuesday. Remember no night trade on Monday night, and we have an old-fashioned hard open on Tuesday at 8:30 a.m. CST.

Have a safe New Year’s Holiday.

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Rich Nelson
Allendale Inc.
815-578-6161
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