Don’t Put the Cart in Front of the Horse

Written for Sevita by Bailey Elchinger, Risk Management Consultant and Regional Director, FCM Division of StoneX Financial Inc.

While the month of November saw the soybean market ‘kick the can’ down the road, the month of December has seen a bean market begin pricing in crop problems in South America once again. Additionally, there were several ‘flash sale’ announcements of bean sales to China and/or ‘unknown’ destinations. These two factors had some traders “putting the cart in front of the horse”. So far this month the bean market has had a fifty-cent trading range and has seen both extremities of that range more than once.

"The cart"

The month of December has seen almost daily ‘flash’ export sale announcements from the USDA. These represent any sales of over 100,000 metric tons. These sales have been reflected in each week’s official export sales report from the USDA. Year-to-date soybean sales are running roughly 3% ahead of the pace needed to meet the current total expectation. While sales have been strong, the shipment pace for soybeans is well below the five-year average and last year’s pace. Part of the slow-down in the shipment pace is due to the logistical issues that are plaguing all U.S. gulf shipments. The Panama Canal water levels are extraordinarily low causing there to be fewer vessels able to travel through the canal each day. If vessels are unable to utilize the canal, travel times from North America to Asia are often doubled in length. Combining those issues with the fighting we now face in the Red Sea will make global shipping a concern.

US Golf export routes to Japan

Another issue plaguing bean demand is the overall Chinese demand outlook. One of the primary concerns in China are hog feeding margins within the country. Hog farm margins continue to run in the ‘red’ in China, which has, in-turn, led to farms destocking to lower sow numbers. Despite the destocking, production capacity is still well above ‘normal’ production. Larger production and lower demand have led to weaker margins and consequently lower corn and meal demand.

"The Horse"

The key driver of supply this time of year is the weather and yield outlook in South America. The growing season started out less than ideal in isolated areas of Brazil, causing plenty of headlines and social media posts. So far, those areas have remained isolated and had minimal effects on final yield and production estimates for the country. Most private estimates have acknowledged that there is a problem, but most are still calling for a record crop. The other large producer and exporter in South America is Argentina. There was recently an election held in Argentina which saw new leadership elected. This new leadership has vowed to make swift and widespread changes to export and commodity policy. The trade is unclear of what these changes will mean for farmer selling and export totals, but many believe the changes will ultimately increase commodity exports out of the country. Argentina has been plagued with poor crops over the last few years meaning these sweeping changes likely won’t have significant near-term effects, but long-term may impact global commodity flows.

The USDA report mid-month saw the USDA leaving all U.S. production and demand data unchanged. There was a small reduction in Brazil production estimates, but largely was a non-event for the markets. The next major report will be released in mid-January. In addition to supply and demand data we will also receive the stocks-on-hand as of December 1st data. This data will help us quantify the production in 2023 as well as the first quarter usage. The November NOPA crush report pegged soybean crush at 544 million bushels so far this marketing year which is slightly ahead of the pace needed to meet the current USDA estimate.

It will be important that soybean producers don’t “put the cart in front of the horse” this marketing year and focusing too heavily on potential export and crush demand while sacrificing the needed attention on global supply and commodity flows. 

StoneX Legal Text