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Cash Market Moves
Thursday, September 13, 2018 12:44PM CDT
By Mary Kennedy
DTN Cash Grains Analyst

The trade war between the U.S. and China has now gone on for over two months, and while recent reports say there are expectations for another meeting "soon," between the two countries, no meeting has been officially announced. Now, with President Donald Trump planning to impose new tariffs on about $200 billion of Chinese imports this week, that meeting may not happen. Still, there are many who believe that China will have to come back for U.S. soybeans regardless of any resolutions.

But not so fast.

Red River Farm Network reported on July 12 that a key China National Cereals, Oils and Foodstuffs Corporation (COFCO) official said in an interview with China's state-run newspaper, that China will be able to replace U.S. soybean exports with alternative sources. That includes an increase in business with Brazil and Argentina. The senior COFCO official also said China can buy more soybean meal, sunflowers and sunflower meal, canola and canola meal and fish meal to fill its needs. COFCO is one of China's state-owned food-processing holding companies.

It's clear that Pacific Northwest (PNW) exporters have no expectations for China business. Since mid-June, as the trade war talks heated up, PNW export bids disappeared -- not just for harvest time, but also for the first quarter of 2019. An exporter recently told me that any pre-contracted soybean sales had been shifted to other destinations.

Frayne Olson, a crops economist/marketing specialist at North Dakota State University, said, "We have missed our peak sale season for new-crop soybeans, as PNW exporters will book October, November, December shipments in July, August and September."

Olson said that, even if the China tariffs "went away" in the near future, "It would take at least three months, if everything works perfectly, to get soybeans efficiently moving in to the PNW export channel." Olson said he has told the farmers he has spoken to at various meetings that they need to "prepare to store this year's soybean crop until at least mid-summer 2019."

I reached out to a few elevators in North Dakota and was told that some exporters on the PNW have been asking elevators to roll September-October shuttle sales to December-January, while others just want to buy the contracts back. I was also told that country elevator bids will continue to vary widely based on what positions the elevator is in. One elevator manager said he was unaware of anyone at "no bid" except possibly some non-shuttle elevators.

Without the PNW market, the market for North Dakota right now is mainly at the Gulf. However, Gulf- and St. Louis-delivered shuttle markets are at a negative basis, record lows for October, reflecting farm bids in North Dakota in the negative $1.80s. A shipper told me that it feels like the wide country October basis levels could easily push forward into November-December, and maybe further, without China. Friday's cost, insurance and freight (CIF) Gulf basis was at a seasonal low of -8X (November futures), and the rail bid delivered to St. Louis was -68X.

Just recently, BNSF Railway extended the temporary rates out of North Dakota to St. Louis through March. Nevertheless, as the Northern Plains soybeans flow to those destinations, traffic will likely become congested, probably causing those markets to go to no bid or even cheaper bids if they fill up.

Olson told me that, if soybeans make a mad dash for the Gulf, it could turn into a "no room at the inn" scenario. "We can only push so many soybeans into the pipeline at a time," he said.

Keith Brandt, general manager of Plains Grain and Agronomy LLC in Enderlin, North Dakota, said, "We have been telling our growers for a long time that our space for soybeans this fall was going to be limited. We will take the contracted soybeans, but beyond that, there is no guarantee. We will have some space now for price later, but it won't get us through harvest. Once that price-later space is filled, it's cash or basis fixed. However, farmers have done a good job of making space at home for those extra beans."

Brandt said that a good carry in the market is a big help. "Local processors have a better basis, but there is a long wait in lines, and $7.00 beans isn't friendly to the farmer."

"It will be just another chapter in the book for another harvest," added Brandt.

Cory Tryan, manager of the grain department and logistics at Alton Grain Terminal LLC in Hillsboro, North Dakota, said: "Bean harvest has started, but at a slow pace for deliveries against contracts, some are binning the early dry stuff (9-11% moistures) on farm in case we get wet. Most of the beans are too green yet, but we could see harvest pick up around the 20th (of September). The first beans coming off are lower 40s (bushels per acre), on average, or around 5 bushels per acre better than projected after the heat and lack of rain late July and first half August. So far, this is a couple of bushels over an average year's crop."

Tryan said that pre-contracted beans will still come to town; however, most of the overrun will have to be stored on farm. The options to do this include older bins, buildings, newly added bins and more bags. The last choice would be to pile beans on the ground.

Piling soybeans is a big risk and could degrade the oil in their seeds, which is a crucial part of their value. Also, because of that oil, piled soybeans could rot faster.

Ken Hellevang, an NDSU Extension grain management specialist, told the Bismarck Tribune in August that farmers shouldn't store soybeans in exposed piles. "A 1-inch rain can spoil the top 2 to 3 feet on a pile, which is 'devastating' in most farm operations," Hellevang told the Bismarck Tribune. "Storing grain in silo bags on the ground is preferable to exposed piles, but the beans first should be dried to 11% moisture. Drying beans will reduce pounds for sale by roughly 2% and can cause breakage. The bags aren't aerated and moisture can collect and move in them."

One shuttle loader told me that soybeans are in "new territory" for everyone involved on both ends of the supply chain. Each has different positions and space to manage their risks, which are much higher this year at every stop along the chain for the harvest window.

CAN CORN SAVE THE DAY?

Olson said that, for now, corn would replace the normal harvest flow of soybeans to the PNW from North Dakota and other Northern states that typically ship harvest beans west.

The PNW supplies corn buyers in Japan on a regular schedule and also supplies South Korea and the Philippines. Still, posted corn basis bids for delivery to the PNW have been slipping lower ahead of harvest, with expectations that more corn will move there due to the lack of soybean bids. Friday's basis for BNSF shuttles delivered to the PNW was at +65Z/+70Z for October. Similar to the Gulf and St. Louis for soybeans, if the PNW market gets flooded with corn, that basis could drop as well or limit delivery time.

Other shuttle loaders in North and South Dakota agree that corn will be the main commodity shipped at harvest in order to keep space open for beans on the farm and at the elevator.

"Our farmers will lean on us for dumping their corn, and we will pile corn," said Brandt. "The basis isn't too bad for corn, and freight should be available so that we can ship corn at harvest and not get too upside down."

As of Friday, BNSF secondary shuttle freight bids for September and October were at no bid and offers were at -$100 per car under tariff, prices unheard of as harvest nears but good for shippers who need freight.

Nevertheless, do not forget the one red light that is suddenly flashing: USDA recently forecast a record U.S. corn yield of 181.3 bpa, with production totaling 14.8 billion bushels. If that forecast comes true, we will have more corn than homes available for it at harvest and well in to next year.

Stay tuned. This story is far from over.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(AG/BE)


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