This past spring, American farmers planted the largest soybean acreage in history, and with only a few isolated exceptions, the environment didn’t do anything to limit that crop from reaching maturity in good condition. The challenge facing oilseed producers today is how do we find upside opportunities to market this crop in a situation where supply is anything but limited?
In terms of Ontario’s 2017 soybean crop, one of the key factors that has significantly changed our province’s crop production this year has been the warm finish to the growing season through the month of September. In their August crop production estimates, Statistics Canada estimated an average soybean yield of 44.6 bushels per acre to reach a total production of 3.7 million tonnes. When StatCan updated their production estimates in mid-September, they increased the yield projection to 49.3 bushels per acre which will put Ontario’s 2017 soybean crop at a record 4.1 million metric tonnes.
While jumping up soybean yields by 4.7 bu/ac in a month seems like a big adjustment to make in 30 days, when you break that number down, it’s actually entirely achievable. Adding one extra pod to each soybean plant represents a yield increase of 3.7 bushels per acre (assuming that you’ve got 180,000 plants per acre and a seed weight of 5,200 beans per kg). In which case that “big” yield adjustment that StatCan rolled out simply means that between mid-August and mid-September, growing conditions in Ontario were such that a typical soybean plant was able to add about 1.2 extra pods per plant. When the crop is successfully off the field and stored away, we will know for certain whether we are just over or just under the 4 million-tonne threshold. But it is very safe to say that both Ontario and the United States are going to harvest their biggest soybean crop in history in 2017.
The good news for prices is that the enormous size of North American soybean supply this year has never been a secret. As farmers’ 2017 planting intentions became apparent last spring, the Chicago soybean futures for November 2017 slid into a trading range between US $9.25 and US $9.75 and have largely stayed within that trading bracket for the entire growing season.
What’s been really interesting to watch unfold, through the spring and summer soybean markets this year, is that although the futures market found a comfortable level within which to trade, cash soybean transactions were suspiciously absent. Farmers went into the spring of 2017 with about
30 % of this year’s expected soybean production forward contracted, and then essentially sold nothing between May 1 and Sept. 30.
On the demand side, export sales of North American new crop soybeans (forward sold export sales), was just under 10-million tonnes at the end of August or 8-million tonnes behind last year, and less than half of 2015’s export sales bookings on the same time period. The market has actually spent the past five months with extremely little commercial trading going on because the end users overseas believe that the price is too high, and the North American farmer believes that the price is too low.
My own view is that the market is due for a bit of a bounce. The world’s population still needs to eat, so the overseas buyers still need to purchase soybeans. If we see some volume of export sales executed on a small bump in pricing, buyers will have reason to believe that the short-term bottom is in, and they’ll rush to catch up on their purchasing needs. A little run up in prices will provide an opportunity for farmers to make some sales to meet their cash flow needs, and the pace of commercial soybean transactions will return to normal. All that we need is a rally in soybean prices to break the standoff and set the market into motion.
There’s a trajectory to price movement. Anyone who has played baseball knows that if you make solid contact, the ball will still be rising when it goes over the second baseman’s head. But there’s very little chance that the ball will still be moving higher when it goes over the center fielder, or the outfield fence. In marketing crops, our objective is to lock prices in at the apex of the flight curve, not to see how far the ball rolls after it hits the ground. While it’s accurate to say that soybean prices have some room to rise, don’t expect the price chart to look like the flight path of a home run into the second deck.
Marketing big crops requires reasonable expectations, and in all likelihood, locking in soybean prices in November of 2017 for shipment in April, May, June of 2018 is going to be the way to lock in the high point on the price curve.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.