Difficult Weather Conditions and a Possible Drop in Demand From China Weigh on Soybean and Wheat Prices

Many experts are concerned that crop yields need to be extremely plentiful during this season, especially relative to the less-than-expected number of acres of plantings in the U.S – the second largest exporter of soybeans after Brazil – to stop global supplies from reducing even further over the next year.

It was an optimistic prediction that came from the United States Department of Agriculture (USDA) on Friday 12^th August, as the federal agency forecasted the yields from the U.S soybean farmers to top records made back in 2016. These surprising numbers were not expected by analysts for a variety of reasons, chief of which were the scorching conditions that farmers experienced across the continent over much of the summer period.

There is a strong requirement for soybeans to be well-watered throughout August to produce adequate pods, and previous conditions throughout the year have left many wondering if the rain will arrive in time, especially throughout North Dakota, South Dakota, Nebraska, Minnesota, and Iowa, all which form part of the Corn Belt. It’s still hoped that forecasted rains for the rest of the month will come to fruition and further bump yields.

The USDA’s currently predicted yield of 51.9 bushels an acre – up 0.5 of a bushel from last year – is on par with record results from a great 2016 season, even though that year saw vastly different weather conditions to what we’re seeing so far now in 2022.

The rainfall from 6 years ago was almost unprecedented, and spread right across an immense region of farmland, with records going back to the late 1800’s only showing similar numbers.

In comparison to 6 years ago, 2022’s rainfall measurements have been well below average for most states, except in some areas in the east, making many growers nervous about their ability to meet demand. The condition of crops and whether they’re healthy enough to produce high yields are also at stake with lower rainfall, and ratings currently hover around 58% good or excellent. In the same week back in 2016 ratings were just above 70%.

The monthly report from the USDA assured that although the dry spell had hit farmers hard in the areas west of the Mississippi – causing possibly irreversible damage like improperly formed pods – shortfalls in production could be made up by better yielding crops located in other states, like Ohio, Indiana, and Illinois. The USDA’s next report will be critical, as they will then report on field measurements that will include counting average pod numbers to determine plant health and yield.

Some Traders Are Questioning the Numbers

When making an observation of the 2022 yields, rainfall, acres planted, and condition of crops, while comparing previous seasons, one could be forgiven for not necessarily following how the yield from this year’s crops could be similar to that of six years ago.

It seems traders were dubious of the forecasts too, as futures for soybeans fell pretty sharply after the USDA released its report.

Reuters reported the Chicago Board of Trade’s (CBOT) most active soybean contract had lost 0.7%, down to $14.02-1/4 a bushel, at 03:09 GMT on the report day. In contrast, the US’s other major exports of corn and wheat were up 0.3% to $6.26-1/4 per bushel and 0.8% to $8.07 1/2 per bushel respectively.

Daily chart – Wheat Sept 2022 – Source: ActivTrades

Big Importers Looking Shaky

There are also now growing concerns that China could pull back on its imports, as the top importer has posted data suggesting a contraction of the economy. A March report by the USDA’s Foreign Agricultural Service suggested that China would import a record-breaking 100 million tonnes of soybeans through the period 2022-2023, but as demand has waned during the worst of the pandemic lockdowns, these numbers are possibly in doubt.

Imports for July were already down 9.1% from the same time a year ago, as shown by customs data, and reported on by Reuters. Last year’s July imports were 8.67 million tonnes, compared to this year’s 7.88 million tonnes. Poor crush margins – which take into account the production costs of making soy meal and oil – and higher prices for importing are said to also have negatively impacted demand.