Harvest contract soybean futures, which were pushing toward $10 per bushel in early January, are now bouncing off a bottom that is $1.50 less per bushel. The price chart resembles an Olympic ski slope that would challenge the abilities of Lindsey Vonn.
Most of the price erosion has occurred since the U.S. and China signed the highly touted Phase 1 trade agreement to break a stalemate over tariffs on trade.
What has happened to create such an economic loss for soybean growers? The prime reason is that China has been buying all its needed soybeans from Brazil. Brazil's January to April 2020 exports to China were 906 million bushels. For reference, that's more than all U.S. soybean exports to China since February 2019.
And the reason for Chinese business going almost totally to Brazil is the fact the Brazilian currency continues to erode in value and the Chinese yuan can buy many more bushels of Brazilian beans than it can buy U.S. soybeans. The Chinese are not dumb, trade agreement or not. And the lack of demand has resulted in a 15% decline in soybean prices over the past two months.
Interestingly, China would have purchased more soybeans from Brazil than it has. But domestic demand for soybean meal in China is down because its hog herd is only 40% of what it was about 18 months ago. Millions of hogs fell victim to mortality resulting from African swine fever. That 900 million bushels of soybeans China purchased from Brazil this year might have been about 1.5 billion bushels, with a normal Chinese swine herd.
Meanwhile, U.S. farmers have bins full of soybeans, some of them going out of condition because they were stored at too high of moisture and there was no demand for U.S. beans earlier this year that pushed up prices. Soybean values remain in the doldrums at levels disappointing to farmers who reveled over the signing of the Phase 1 trade agreement..
So far in 2020, China has purchased $3.1 billion in U.S agricultural commodities of the $12.5 billion expected. President Trump has frequently said China has been buying “a lot” of farm commodities, although ag economists disagree with that relative volume. He says he will report “in a week or two” whether China is living up to its obligations under the Phase 1 trade agreement, said he was “watching closely” whether China would meet its commitments to increase U.S. goods purchases under the trade deal.
With the White House anger over the Chinese origin of the coronavirus, the public opinion of both countries about each other has shifted significantly according to observers. Iowa State University ag economist Dr. Wendong Zhang says, “One of the things even since the trade war is the Chinese political and business leadership relationship are expecting a bumpy relationship between the two countries regardless of who goes to the White House next year.”
It sounds like U.S. soybean farmers may need another market with more stability.
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Stu Ellis is an observer of the Central Illinois agriculture scene. In addition to his weekly column, you can view his “From The Farm” and “Harvest Heritage” reports on WCIA 3 News.