Industry experts provide insight into markets and China relations

December 17, 2020 | Bethany Baratta

Iowa Soybean Association (ISA) members this week tuned in to hear from key industry experts to learn about soybean market prospects, 2021 economics and suspected strategies in trade with China during a special webinar.

The webinar featured Matt Campbell, risk management consultant with StoneX Financial, Jim Knuth, senior vice president of Farm Credit Services of America, and Terry Branstad, former U.S. Ambassador to China and the former governor of Iowa.

“This was a unique opportunity for us to bring relevant information to our producers and farmers in how we can move forward in 2021,” said Jeff Jorgenson, ISA president and farmer in Sidney.

Soybean supply squeeze

The supply and demand picture changed drastically from the 600-million-bushel carryout the U.S. Department of Agriculture (USDA) forecast in August. Latest figures from the USDA show a 190-million-bushel carryout, one of the tightest supply and demand situations since the 2014-2015 marketing year.

“The big story this year is exports,” said Matt Campbell, risk management consultant with StoneX Financial-FCM Division. “That’s where the enthusiasm lies. China is back in a big way.”

The United States has shipped 850 million bushels since Sept. 1.

Soybean exports have been strong, and Campbell doesn’t expect that to slow much until soybeans in South America are ready for exporting in March.

Weather is a wildcard for the South American soybean crop currently, Campbell said. August to October was one of the driest three-month stretches in history, and the present La Nina there is not favorable to above-yield trends.

“With limited subsoil moisture from pre-planting, farmers in Brazil will be relying on just-in-time rains to get them to the finish line this season,” Campbell said.

Iowa farmers certainly understand the difference precipitation makes from a crop success to a crop failure; 2020 was a prime example. Drought in central Iowa ravaged soybean crops; timely rains elsewhere in the state made for above-average yields.

As is the case in South America. There’s still an opportunity for timely rains to boost soybean supplies. As the world waits to see how large the South American soybean crop will be, the U.S. remains the top supplier of soybeans to the rest of the world.

Risk management

Farmers have faced much uncertainty over the last few years with African swine fever and the trade war with China eroding demand for soybeans. Setting price targets is a good first step in managing risks heading into 2021, Campbell said. He also recommends looking at puts to create a price floor for soybean bushels.

“It’s an easy way to set a floor and let the market continue to rally and take advantage of pricing opportunities,” he said.

ISA District 1 Director Chuck White of Spencer said Campbell’s remarks reminded him of the volatility of the soybean market.

“Since 2012 and 2014, we’ve seen prices dwindle to the lowest prices we’ve seen since 2018,” White said. “We’ve since seen a nice recovery, but we have to stay sharp. We can’t get lulled to sleep thinking that prices will be good forever.”

Interest rates

Variable or prime rate interest rates have seen a 2% drop in 2 years, settling today at 3.25%. The long-term, 10-year treasury rates are now below 1%. It’s a tremendous, once-in-a-lifetime opportunity to finance or refinance long-term debt, especially real estate debt, Knuth told ISA members.

“Lower interest rates lower annual payments, lowers breakevens and fixed costs and can competitively position farmers for the future,” he said.

He said the window of opportunity to take advantage of those lower interest rates is still open for farmers.

White said low interest rates, which Knuth expects to continue into 2021, bodes well for farmers.

“It helps our bottom line when we don’t have to pay as much interest,” he said.

Land values in Iowa are still holding strength heading into 2021. Driving support for the historically low interest rates is government aid in the form of the Payment Protection Program (PPP) and Coronavirus Food Assistance Program (CFAP 1 and 2) which has strengthened producer cash flow and producer confidence, and willing and able buyers in the state.

Knuth said farmers shouldn’t rely on continued government support, especially the level that was afforded in 2020.

“It’s unsustainable at the level, but essential for ag in 2020,” he said. “We are guardedly optimistic that it will work exactly as intended. It’s not going to be another kick-the-can-down-the-road bailout, but a bridge from more profitable years in 2018 and 2019 to a much more optimistic 2021 where we’re seeing positive movements in corn, soybean and swine markets.”

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