Soybean Basis: Already Tanked — Ripple Effect, Dim Outlook – DTN

Photo: Bruce Schultz, LSU AgCenter

For the current 2018-19 crop year — which is soon to expire on Aug. 30 — soybean basis has been pathetic. Much of that can be attributed to the trade war that has been going on between China and the U.S. for more than one year now. When the trade war started in mid-June 2018, shuttle basis for soybeans delivered to the Pacific Northwest (PNW) immediately disappeared.

With the majority of soybean exports going to China off the PNW, the trade war shut those exports off and in turn left farmers in North Dakota, South Dakota and western Minnesota with no export market for their soybeans except to the Gulf.

However, that Gulf soybean market became overwhelmed and basis weakened to that market as well. On top of that, logistics turned into a complete nightmare as flooding overwhelmed the Mississippi River system starting at the Gulf in January 2019 and overtaking the entire system through June. The flooding caused major closures of locks and dams and shut down the St. Louis Harbor numerous times, stopping all barge traffic. When the river finally reopened, the backup of barges caused traffic jams up and down the river.

Sales Slowly Picked Up, Only To Stall Yet Again

There was a glimmer of hope in December 2018 with China buying U.S. soybeans, their first major purchases in six months. In early 2019, China state-owned firms purchased U.S. soybeans a day after talks between the U.S. and China showed progress towards a trade deal, with a commitment from China to buy more U.S. soybeans as a measure of “goodwill.”

In late June 2019, the USDA reported export sales of 544,000 metric tons of soybeans for delivery to China during the 2018-19 marketing year. On Aug. 1, the USDA announced U.S. soybeans sold to China, the first since late June and the first since the Chinese government offered to exempt five private crushers in the country from the 25% import tariffs on U.S. beans arriving by the end of 2019. However, that same announcement included an even larger cancellation of soybeans previously purchased by China.

Then, all hell broke loose shortly after noon CDT on Aug. 1 when President Trump announced on Twitter that he would impose a new 10% tariff on $300 billion of Chinese goods, set for Sept. 1, with China’s failed promises to buy U.S. goods as one of the reasons. That news sent the soybean basis on the PNW to drop as much as 30 cents, once again causing the basis in the areas that ship to the PNW to weaken basis for their farmers.

To add salt to that open wound, various news organizations reported that China’s Ministry of Commerce said in a posting online that Chinese companies suspended purchases of U.S. agricultural products, saying suspension would continue until the U.S. created the necessary conditions for cooperation between the two nations.

Basis Bids Better In Parts Of Midwest

Angie Setzer, vice president of Grain Citizens LLC, Charlotte, Michigan, told me on Aug. 9 that, “in our area we’ve actually seen basis strengthen as a lot of what was intended to get planted to beans was either not able to get into the ground or went in way later than normal. The later-than-normal planting has obviously increased concerns over what an early frost would mean.”

Setzer added that the supply uncertainty, coupled with a new 40-million-bushel-per-year crushing plant going online, has created strength in basis not seen the last couple of years. “There are still a decent number of beans on the farm, but those are currently being held in relatively tight hands as well. Many farmers are waiting to see what they are going to produce or what the market is going to do before making sales. Many commercials are making sure we will have a decent crop before liquidating their remaining supplies as well.”

As for basis in the areas that rely on a strong soybean export program on the PNW, basis has weakened further after China said they would stop U.S. soybean purchases.

A manager of a shuttle basis facility in central North Dakota told me that when the China talks failed and the new tariff was announced, the PNW tanked and moved to the equivalent of a St Louis bid. He said that while there was a rail rate for St. Louis put in place when the tariff war began, that rate to St. Louis only runs through August.

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He noted that many shuttle loaders there have weakened local basis and when I checked websites of the shuttle loaders in eastern North Dakota, the nearby basis bids were $1.30 to $1.35 under the November futures, with new-crop basis posted at $1.40 under November futures.

“Maybe we lose the eastern bean crop and they pull beans over the river,” he added. Should that happen, and if the railroad extends the rates out of his area to St. Louis, that could give some hope to the farmers in the U.S. Northern Plains.

However, soybeans shipped out of St. Louis to the Gulf rely on a strong export market and for this crop year, that hasn’t been the case. In the Aug. 8 weekly export sales and shipment report, USDA noted that 2018-19 soybean export commitments are down 17% from one year ago for that same timeframe.

The Wall Street Journal noted in an Aug. 2 article that recent U.S. Census Bureau data showed that U.S. exports to China fell 19% for the first half of the year, as “tit-for-tat tariffs and other barriers imposed by Washington and Beijing took their toll.” After holding the top spot among U.S. trading partners from 2015 to 2018, China now sits at No. 3 and is smaller than Mexico for the first time since 2005, noted the article.

In the meantime, it appears the DTN national average soybean basis will end the current crop year at its lowest level in five years.

The way things are looking now, it will likely start the new crop year on the bottom, right where it left off, with little hope of it being salvaged anytime soon.

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