As soybean prices skyrocket, global grain traders are looking for their very own spy kids to keep an eye on Brazilian farmers.
The situation: Casual contracts – communicated months ago via WhatsApp, phone calls, and emails – are tempting farmers to dump deals and double their profit by selling at current market prices.
Farmers claim that verbal agreements aren’t contractually binding or cite a washout clause allowing them to resolve their contracts without delivering on their commitments.
Undercover cops: In response, trading companies have set up satellites and spies to surveil farmers, making sure they don’t secretly sell their soybeans to another buyer. Lawsuits have been brought against farmers who have walked away from contracts.
Despite grower privacy and harassment concerns, tough tactics seem to be working. Courts are mostly siding with traders.
Zoom out: Soybeans have rallied to an 8-year high, and China has been a big buyer of Brazilian beans as their pig herd bounces back from African Swine Fever. But Brazilian soy exports are expected to fall in May as China dials back its demand following their large purchases.
But wait, there’s more: Brazilian soybean exports are actually set to take a back seat to iron ore exports for the first time in six years, driven by demand from iron ore producer Vale and – you guessed it – China.
Grain bin manufacturers and contractors will be rolling up their sleeves for the foreseeable future.
“On-farm storage demand is through the roof,” noted Nathan Luff, a Sukup/Brock dealer in Missouri. His take reflects industry vibes that demand this heavy hasn’t been seen in 10+ years.
How we got here: With the price of corn and soybeans soaring to recent highs and a solid 2020 harvest for most, many farmers are flush with money and are looking for a place to stash that cash. Hello, grain storage.
But it’s not just corn and soybean farmers who are driving demand…
- Wheat prices are up.
- Rice farmers had a strong production year.
- Even pistachio growers, who are experiencing record production, need – you guessed it – grain bin components.
And that’s not all. When the derecho ripped through the Midwest last August, it damaged or destroyed 120 million bushels of grain storage in Iowa. Bin builders are playing catch up like mad.
Add in strong export demand from China and commercial grain traders are begging for more storage, too.
Bottom line: With dealers booked solid through late summer and demand funneling from all corners of the industry, wildly long waitlists will become the 2021 norm.
Corn and soybean data stole the show at Tuesday’s WASDE report reveal.
The commodity cousins duked it out for the top headline as 2020 corn yield projections tanked and soybean stocks were tight.
The rundown: A 3.8-bushel yield drop for corn was the first bomb to drop in the USDA’s report. The department noted that August’s derecho plus a pretty crispy summer knocked yields in the Corn Belt much more than expected. A projection dip this steep between the December and January reports hasn’t been seen in 30+ years.
On the soybean side, 35 million bushels evaporated from ending stocks, making farm economists mull over the word ‘shortage.’ But ultimately, the crop has experienced tighter supply squeezes, even in 2013-2014.
And yes, the markets noticed…
Within minutes of the USDA’s report, soybeans skyrocketed 60 cents and corn shot up to its daily limit.
What else we learned:
- Growth in milk per cow and more dairy cows led to higher ‘20-’21 milk estimates.
- Production estimates for beef ticked down on lower cattle slaughter.
- Heavier pigs couldn’t offset the slowed slaughter rate as estimated supply dropped.
- A 500K-bale decline in Texas took cotton production lower.
Soybeans sure feel rejuvenated after the holiday break.
Abundant demand and tight supplies are leading to +$13 prices, not seen since 2014. A trifecta of drivers are leading to the tightest demand-supply split in over six years:
→ China’s heavy purchases – $6.8 billion in October & November alone – as they rebuild their hog herd
→ Southern Brazil and Argentina’s continued dry spell this growing season
→ Weakness in the U.S. dollar giving a price break to global importers
On the flip side: While row crop farmers bask in the price opportunity, livestock producers are cringing. It’s the double edged sword of agriculture inputs.
CoBank projects that 2021 will bring 12% higher feed costs for the animal protein sector. In the summer alone, cost inflation is expected to reach 18% for hog producers, cattle feeders, and chicken growers.
Bottom line: The industry has its eyes on January 12 for the next WASDE report. Expectations of increased U.S. soy exports and lower South American production means this soybean surge won’t slow anytime soon.