By Michele F. Mihaljevich
MCHENRY, Ill. —The phase one trade agreement between the United States and China could lead to U.S. farmers planting far more soybeans than expected just a few months ago, Allendale, Inc. market analysts said recently.
The analysts cautioned their projections are dependent on whether China ends up purchasing as many agricultural goods as mentioned in the agreement. As a part of the deal signed Jan. 15, China has promised to buy about $40 billion in U.S. agricultural products, including soybeans, corn, wheat, pork, poultry and beef, in each of the next two years.
“As it stands now, we do believe this trade deal will be enacted,” noted Rich Nelson, Allendale’s chief strategist. “The key question is, of course, whether it’s fully enacted over the next two years. I have no problem with some skepticism about what this could entail simply because it’s such a big change. We know in the past year and a half or so we’ve had quite a few disappointments along this process.”
The analysts discussed the corn, soybean and wheat markets Jan. 29 during Allendale’s Ag Leaders Conference Series.
The USDA’s March 31 Prospective Plantings report may not be correct due to its timing, Nelson said, as producers will be surveyed the first two weeks of March.
“It will not be accurate,” he said. “Why do we make such a massive statement like that? If this China trade deal is correct, we’ll see some buying starting in mid-February and continue all the way through May. That could or should have a massive change on crop pricing, specifically soybeans. So the report will come at a time when producers have only seen two-to-four weeks of this China trade-based buying. It will probably undercount the likely soybean acres for 2020.”
In November, before the China deal was signed, USDA estimated 84 million acres of soybeans for 2020, said Greg McBride, Allendale broker. Given the potential rally in soybean prices in the months ahead, Allendale estimates farmers could plant 11.7 million acres more than in 2019, to 87.8 million.
“The basis of this acreage estimate is that the market will make the acreage come,” he explained. “If you price it, they will plant it, or if you plant it, they will buy it.”
McBride said he was initially skeptical about the trade deal, but after talking with co-workers and others, “it really does feel like this is going to work. We’re going to see China come in and buy. If China formally opts out, we will see this market go into a tailspin and back off.”
Brazil and Argentina will plant fewer soybean acres this fall, he noted, adding potentially higher yields means production won’t necessarily drop. Fewer acres are anticipated because some soybean demand will return to the United States with the China deal, McBride said.
Pre-trade deal estimates suggested producers might plant an additional four million acres or more of corn in 2020, said Steve Georgy, Allendale president. With the trade agreement signed, the company is estimating a 2.2 million acre increase.
“Assuming China buying starts in mid-February and continues into planting, we see soybeans receiving the lion’s share of additional acres in 2020,” he stated. “If we start seeing China come in and buy between February and before planting, it’s going to change the mind of the producer out there on what we’re going to plant.”
Wheat production worldwide is outpacing demand, said Mike Lung, an Allendale broker. Foreign competition for this country’s wheat market is increasing, he noted.
“We’re at record levels of oversupply compared to demand,” Lung said. “U.S. producers have been reacting sharply to the world supply increase by cutting acreage.”
For 2019-2020, U.S. farmers planted 30.8 million acres of wheat, the lowest since 1909, when 29.2 million were reported.