Changing expectations: US soybean exports and China ending stocks

The U.S. Department of Agriculture’s July World Agricultural Supply and Demand Estimates report provided an early look at how U.S. soybean exports might adjustment in light of China’s recently imposed tariffs.

As many have noted, the current report adjusted soybean exports for the 2018-19 marketing year—the soybean crop currently growing—11 percent lower than the June report. While this was a sharp change in expectations, it’s important to consider how current estimates fit into broader United States soybean export and Chinese consumption trends.

U.S. soybean exports

Soybean exports are currently estimated at 2.04 billion bushels in 2018-19. This marks the third consecutive year of more than 2 billion bushels of soybeans exported. For reference, soybean exports first exceeded 1 billion bushels during the 2001-02 market year. Over the last 18 years, soybean exports have nearly doubled, growing at an average annual rate of 3.7 percent.

After accounting for 20 to 30 percent of production throughout much of the early 2000s, exports have since expanded to account for nearly 50 percent of production in recent years. For the 2018-19 marketing year, soybean exports are expected to represent 47 percent of production.

There are two ways of considering the USDA’s July WASDE estimates as it relates to current trade conditions. The current estimate represents a 6.2 percent drop in soybean exports since 2014-15. Secondly, the current estimate for 2018-19 soybean exports is also 11 percent lower than the June estimate.

Both measures underscore how current estimates represents a big-picture slide in U.S. soybean exports over the last two years, and a large shift in expectations in just a month. Both of these factors have weighed on the market.

That said, this is an early forecast and will likely change over the next several months. Keep in mind the 2018-19 marketing year has not started yet. As actual export data are realized, and-or trade relations evolve, expect this forecast and the soybean market to change.

One more point—the decrease in expected soybean exports represents a net change. This is to say that while exports to China are likely to decrease, exports to other buyers are expected to increase. For the 2018-19 market year, the net change will be important to monitor.

How does China adjust?

While much attention has focused on U.S. impacts, the WASDE report provides insights into expected changes in Chinese consumption and imports. Two key observations are notable.

First, the domestic consumption of soybeans in China is currently expected to be 5.2 percent higher in 2018-19. Second, imports are expected to be down 2 percent from last year. How does an increase in consumption and decrease in imports happen?

China is currently expected to dip into ending stocks to make-up the difference. Over the last decade, China has maintained ending-stocks at more than 15 percent of use. Last year (2017-18), ending stock reached 22 percent. Current estimates are for Chinese soybean stocks to contract sharply in 2018-19; physical stocks to decrease by 18 percent, and the stock-to-use ratio to fall to 17 percent.

Wrapping it up

The 2018-19 soybean marketing year—for the crop planted and harvested in 2018—is shaping up to be a dynamic one. Still months away from harvest, soybean exports have taken center stage as current estimates reflect a second-year of decline. The decline in exports since 2014, a 6 percent drop, is equal to about 2.6 million acres of soybeans. Furthermore, expectations about 2018-19 exports have changed significantly in just a month.

The current trade situation has implications in China as well. Currently, China is expected to dip into historically strong ending stocks to balance increased domestic consumption with an expected decrease in imports.

When thinking about the current trade situation and possible implications, we believe it’s important to form expectations around specific measures. Rather than vague “it will be really bad” or “it will be just fine,” focus on 2018-19 specifics such as the likelihood of U.S. soybean exports exceeding 2.04 billion bushels, the likelihood China’s domestic consumption increased by more than 5 percent, or China contracting total soybean imports by more than 2 percent. In our minds, these are key measures to monitor over the next year as they will provide insights into how the market and trade landscape will begin to sort out.

Editor’s note: David Widmar is an agricultural economist following the key trends in U.S. agriculture. He is also a co-founder of Agricultural Economic Insight (www.AgEconomists.com) and is a researcher at Purdue University.