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Unless Cleared, Soybean Hurdles Darken Price Outlook, Bank Study Shows

Soymeal demand will need to build to keep positive crush margins.

DES MOINES, Iowa -- With too many uncertainties, the 10-year outlook for the soybean market isn’t looking too bright, according to a recent study by Rabo AgriFinance.

The bank’s baseline outlook study, based on U.S. markets, assumes limited Chinese imports of U.S. soybeans due to the ongoing trade dispute, and the continued spread of African swine fever (ASF) will keep U.S. soybean exports under 2 billion bushels.

Since 2014, U.S. soybean exports to China have ranged as high as 13.2 billion bushels in 2016 to 2.94 billion bushels in 2018.

The study indicates that farmgate soybean price forecasts remain depressed, as do planted acres, due to ongoing profitability challenges.

“As you might suspect, we get a fairly low price for soybeans over the 10-year time period,” says Stephen Nicholson, Rabo AgriFinance’s senior grains & oilseeds analyst. “There’s a 75% probability that the price of soybeans will stay below $9.60 per bushel (cash).”

During the study, the bank played out a scenario where U.S. 2020 acreage rebounds from the wet planting season of 2019. In that scenario, soybean prices fall to $7.50 per bushel.

As planted acres rebound to 2017 and 2018 levels, as expected, prices react negatively and fall severely below the baseline-outlook price, the bank’s baseline report stated.

Interestingly, it takes two years for soybean prices to recover to at least be on par with the baseline. In this scenario, the low prices stimulate U.S. soybean exports to be above-baseline levels through the 2022/23 crop year.

If you consider that the ASF issue has nicked the soybean market by 50¢ to $1.00 per bushel, if the deadly fever goes away, the bank’s model shows the market could build back in that $1.00-per-bushel loss, Nicholson says.

“Now, we know that’s not going to happen, based on the nature of the disease,” Nicholson says.

Regarding the trade war, this is worth about $1.00 to $1.50 per bushel, he says.

“So, if we go back to where we were, regarding soybean exports prior to the trade war, we would see prices move back up by that $1.00 to $1.50. This would be pretty significant, if things would change today,” Nicholson says.

Soybean Ending Stocks

Keeping in mind that the Rabo AgriFinance baseline outlook was done before the USDA’s October Report dropped U.S. 2019/2020 soybean ending stocks sharply (460 million bushels), the study shows a building of ending stocks over time.

“Soybean acres are getting cut back, but yields continue to increase. So, this is offsetting any increase on the demand side, whether it’s with exports or crush,” the oilseed analyst says.

The baseline analysis suggests U.S.-planted soybean acres will be rangebound between 81.0 million and 84.0 million.

The average loss of U.S.-planted soybean acres, due to the trade war and ASF, over the 10-year baseline is over 5.0 million acres per year.

Bright Spot

The bright spot in the outlook is increasing U.S. domestic crush.

“We get so focused on China trade and ASF that we forget about local domestic industry. The crush margins continue to be good. Gross crush margins have helped increase crush capacity,” Nicholson says.

Central Illinois gross cash crush margins have mostly remained above $1.50 per bushel since 2017, according to the Rabo AgriFinance baseline report.

“Positive margins have contributed to the opening of two new crush facilities in North Dakota and South Dakota in 2019, and a third one in Michigan is scheduled to be online in 2021. And, Cargill is expanding an Ohio crush facility,” Nicholson says.

He added, “The fact is the companies wouldn’t be expanding crush operations if they weren’t making money.”

Soymeal demand will need to build to keep positive crush margins.

Over the 10-year baseline outlook, Rabobank is looking for an approximate 1.5% annual increase in U.S. meal demand and a modest increase in exports. Domestic demand is driven by increases in new poultry production facilities being built and overall higher animal protein exports, due to strong economies and meat supplies depleted by ASF, according to the bank’s baseline report.

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