This analysis is by Bloomberg Intelligence analyst Mike McGlone. It appeared first on the Bloomberg Terminal.
There’s little potential light at the end of the tunnel for broad agriculture-sector price recovery, with the notable exception of soybeans. Elevated grains stocks-to-use, the strengthening dollar, declining U.S. exports and trade tensions will keep ag prices generally under pressure, but soybeans are about as beaten up as they get, in our view. The oilseeds’ price discount, on the back of its status at the epicenter of U.S.-China trade tension, appears to be sufficient. U.S. production is plunging and exports to China near zero have only upside potential.
Multiyear lows in soybean prices this spring are supporting a rapid rebalancing of the market, reducing bloated inventories as U.S. exports-to-production are set to recovery to near the 2017 all-time peak about 50%.
Soybeans gaining upper hand vs. stock market with trade tensions
Soybean prices are showing divergent strength and should be a stalwart for the moribund agriculture sector, in our view. Beans are about as beaten up as they get. Prices reached an 11-year low a few months ago, U.S. exports to China have dropped toward zero and production is plunging.
Hard to fall from the floor, Supporting Soybeans
U.S soybean exports to China dropping toward zero tilt risk vs. reward for prices to the upside. Our graphic depicts the annual average of accumulated soybean exports near 4% of production — the lowest since 2000. This compares with peaks near 25% in 2014-17. While exports to China are unlikely to revisit the previous highs soon, poor Corn Belt growing conditions and low prices are pressuring production to the most significant annual decline (about 21%) since 1984, based on the latest USDA estimates.
Market rebalancing is advancing rapidly, whittling away at the overhang of supply. Although total exports are expected about the same as last year — about 50 million metric tons — the percentage of production will approach the 2017 peak about 50%.
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....MUCH MORETrends that need to reverse for ag recovery...Price pressure to persist as grains, agriculture cage tightens
Agricultural commodities need three primary suppressants to reverse for a sustained price recovery, in our view. U.S. grain stocks and the greenback remain too high, and exports are too low. A potential peak in global grain stocks-to-use from a two-decade high indicates there’s light at the end of the tunnel.
