U.S. soybean growers are losing market share in the all-important China market because the race to grow higher-yielding crops has robbed their most prized nutrient: protein.

Declining protein levels make soybeans less valuable to the $400 billion industry that produces feed for cattle, pigs, chickens and fish. And the problem is a key factor driving soybean buyers from the U.S. to Brazil, where warmer weather helps offset the impact of higher crop yields on protein levels. A decade ago, the United States supplied 38 percent of soybeans to China, the world’s top importer, compared to 34 percent from Brazil. Now, Brazil supplies 57 percent of Chinese imports compared to 31 from the United States, according to China’s General Administration of Customs. Soybeans are by far the most valuable U.S. agricultural export, with $22.8 billion in shipments in 2016. Declining protein levels and market share pose another vexing problem for soy farmers already reeling from a global grains glut and years of depressed prices.

Corn analysis

Corn closed the week 3 3/4 cents higher. Last week, private exporters announced sales totaling 506,096 mts of corn to an unknown destination.

Weekly export sales of corn showed a total of 60.3 mb (1,531,000 mt) with 56.9 mb (1,445,900 mt) for the 2017-2018 marketing year. This put total marketing year sales at 1.197 bb, 22 percent less than the previous marketing year. Informa came out with their 2018 acreage estimates with corn at 89.18 million acres, down from 90.17 million acres last year. In the weekly EIA report, ethanol production was reported at 1,062,000 barrels per day up from last week’s production at 1,061,000 barrels per day. Stocks were reported at 23.8 million barrels, compared to last week’s 22.7 million barrels. Corn producers are expected to plant about 1 million less acres in 2018 compared to 2017 as producer react to lower corn prices. In the South, look for producers to seed more cotton in favor of corn this year. Weather this spring will be so important to the growing season. It won’t matter how many acres are planted if it doesn’t rain. Producers should look to buy the weakness in the last half of February for a rally into the spring and possibly the summer if weather conditions remain dry.

Strategy and outlook

As prices rally during the winter months, producers look to sell the carry and lock in basis as it narrows. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.

Soybeans analysis

Soybeans closed the week 11 cents higher. Last week, private exporters announced sale of 132,000 mts of meal to the Philippines.

Weekly export sales of soybeans showed a total of 27.9 mb (759,400 mt) with 22.6 mb (616,300 mt) for the 2017-2018 marketing year. This put total marketing year sales at 1.589 bb, 13 percent less than the previous marketing year. Informa forecasted 2018 soybean acres to be 91.2 million vs 90.14 million a year ago. U.S. producers are expected to plant an additional 1 million to 1.5 million acres this spring. Because Brazil can only store up to 25 percent of their harvest, they are forced to forward sell approximately 75 percent of their early harvested soybeans. It is the period between mid-February and May that South America over takes the U.S. as the primary port of origin for beans. This will leave weather on late maturing crops as the sole bullish factor for South American soybean values. February in Brazil and Argentina is like August here as it’s a key yield-developing month for three quarters of the crop. If weather turns hot and dry, prices will rally sharply, however with good rains across the country, the price of soybeans should turn south. Producers should buy a major pullbacks in the market.

Strategy and outlook

Producers should have made sales as prices rallied into resistance. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.