While the soybean market perhaps isn’t the most news grabbing commodity out there in comparison to those in the areas of energy and precious metals, it still is worth keeping an eye out for. While commodities such as gold, palladium, oil, and more promise to reach record high prices, the soybean situation is quite the opposite.
The United State’s top agricultural economist said on Thursday that soybean farmers would struggle in 2019 with high stockpiles weighing on prices even more, regardless of whether the U.S.-China trade dispute ends with an agreement.
The US Department of Agriculture’s chief economist Robert Johansson spoke concerning the situation many US farmers would find themselves in. Shipments of U.S.-grown oilseeds dropped significantly when China extended a 25 percent tariff on them last July, costing farmers collectively $7.9 billion. Even if current trade negotiations work out well between the two administrations and the tariff is dropped, the economist said that he doubts the market will recover.
“The record-high stocks in the US due to the trade situation will take several years to unwind, which will weigh on US prices going forward even with potential China purchase agreements,” said Johansson in his prepared speech. “Compared to our 10-year projection of soybean prices from last year, our current estimates show that prices for soybeans are likely to take at least until the 2020 crop year to recover.”
The economist went on to predict that there will be a staggering 24.8 million tonnes of U.S. produced unsold soybean just sitting, more than doubling the previous record. He also estimates that soybean prices will reach $8.8 per bushel in 2019, up 2.3 percent from last year but still lower than current market prices, which as of today are at $9.09.
Much of the demand of soybeans come from China, which resumed modest purchases of the agricultural crop after presidents Xi Jinping and Donald Trump agreed to a 90-day trade truce in 2018, with a tentative promise to buy more US farm products.
These tariffs have also affected agricultural traders. Bunge (NYSE: BG), the worlds largest oilseed processor, announced on Thursday that their annual results fell below what analysts forecasted of the company. “Although 2018 was a substantially better year than 2017, we are not satisfied with these results, and we know that Bunge has the global assets and people to perform better in the future,” said chairperson Kathleen Hyle in response to the dismal results. The company, misjudging the impact Chinese tariffs would have on its profitability, has seen its share prices decline around 24 percent since October.
While soybean farmers are expected to have a bad year, corn is forecasted to grow significantly in contrast. The United States Department of Agriculture expects a 3.3 percent jump from last year. 92 million acres of the crop are expected to be harvested in 2019, the largest amount seen since 2016.
“Questions about policy, trade, weather, and market information are all having an impact making the outlook less certain than perhaps any time since the first year of Freedom to Farm in 1996,” added Johansson on a concluding note. If anything is certain, agricultural commodities have an interesting year ahead of them.
