After six years of depressed prices, the grains have finally turned into a demand-led bull market.

Most market analysts agree the recovery from the lows scored during the height of the COVID-19 pandemic were totally unexpected and nothing short of a miracle. Soybean futures hit a low of $8.24 3/4 on April 20, 2020, and stayed depressed until August 2020 when the market started the more than $6 parabolic rally.

The soybean rally was a result of a smaller crop, but the bigger factor was demand led by a massive buying spree by China. As a result, the United States has been on a record export pace. As of Jan. 28, exports totaled 2.125 billion bushels. This is nearly 96% of USDA’s projection for the entire marketing year, which began on Sept. 1. China made up nearly 60% of that total at 1.28 billion bushels.

Kevin Scott is a Valley Spring, S.D., farmer and American Soybean Association president. (American Soybean Association photo)
Kevin Scott is a Valley Spring, S.D., farmer and American Soybean Association president. (American Soybean Association photo)
Kevin Scott, a Valley Spring, S.D., farmer and American Soybean Association president, said China is crushing beans for feed as they rebuild their hog herd, which was decimated by African swine fever.

“We know there’s demand there, and it's real demand because they’re building a new facility, lots of new swine facilities and they’re modern systems and in those systems they want to use more soybeans because it’s a better finishing product for their hogs,” he said.

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China is making great progress rebuilding the herd back to pre-ASF levels; according to the China Ministry of Agriculture, the country is nearly at 90% of pre-ASF levels.

Monte Peterson is a Valley City, N.D., farmer and chair of the United States Soybean Export Council. (American Soybean Association photo)
Monte Peterson is a Valley City, N.D., farmer and chair of the United States Soybean Export Council. (American Soybean Association photo)
“It’s all in an effort to get more pork on the market shelves and lower prices at the same time,” said Monte Peterson, Valley City, N.D., farmer and chair of the United States Soybean Export Council.

China’s pork prices, however, have not cooled off, and are at the same record high levels they were a year ago at the height of ASF.

Peterson said, as a result, setting a record on soybean exports is a definite possibility, and exports this last year have been considerably more than what the U.S. has seen over the average from the past 10 years.

“Certainly, at the pace that we've started out this marketing year, you know with both sales and load out, it sure looks encouraging. I mean global demand continues at a pretty significant pace,” he said.

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That strong demand whittled ending stocks down to 140 million bushels in January. That could be revised downward in the February World Agricultural Supply and Demand Estimates report.

“That demand is reflected in the price that we see here back in the U.S. for our U.S. soy,” Peterson said.

Soybean futures pushed to six-year and contact highs of $14.36½ on Jan. 13.

Bob Metz is a Peever, S.D., farmer and a past president of the American Soybean Association. (South Dakota Soybean Council photo)
Bob Metz is a Peever, S.D., farmer and a past president of the American Soybean Association. (South Dakota Soybean Council photo)
Bob Metz, a Peever, S.D., farmer and a past president of the American Soybean Association, has been on countless trade missions to China. He doesn’t think China’s buying spree was a result of the phase one trade deal but of the need to replenish their government storage, which usually holds about a year’s supply.

“China probably sucked down some of the reserves they had. I think they brought those down over the last couple of years because of the embargo,” he said.

Plus, U.S. soybeans still look inexpensive to China compared to their domestic price, which hit nearly $18 on Jan. 28.

“Let’s face it: Our soybeans were cheap, and China saw an opportunity to buy up cheap soybeans,” Metz said. "The Brazilian soybean crop is also delayed, and so they didn’t have any soybeans to sell China in January like they normally do, so the U.S. gained some additional business."

Metz also points out that China’s demand reflects their need to provide a secure food supply for their population.

“China wants to make sure that they can feed their 1.4 billion people, and the Chinese really like soybeans, they really like pork and they like chicken and those all need protein," he said.

However, China’s demand has not stopped at soybeans. They have tendered for nearly 614 million bushels of U.S. corn so far this marketing year. In fact, China shocked the market during the week ending Jan. 29, purchasing more than 230 million bushels of U.S. corn over four days. The 83-million-bushel purchase on Jan. 29 was the second-largest on record. As of that date, total corn exports were running at 2.1 billion bushels, 82% of USDA’s projections. That pushed corn prices to contract and seven-year highs, with the March corn contract hitting $5.55¾ on Feb. 1.

China has also been importing U.S. sorghum and wheat, and Archer-Daniels-Midland's CEO recently reported China had purchased 200 million gallons of U.S. ethanol for delivery during the first half of this year. That equates to around 70 million bushels of corn. ADM officials also commented they expected China to import 25 million metric tons of corn annually.

Some market pundits have made the case that most of the soybeans purchased by China were priced at less than $10 and were essentially stolen from U.S. farmers. They are even comparing the event to the Great Grain Robbery the Soviet Union staged against the U.S. in July 1972. Critics point out that if China was more transparent in reporting their grain production and stocks U.S. farmers would have known how desperately China needed product. As a result, they would not have sold their soybeans so early and waited for better prices. However, Scott said he doesn’t regret it.

“Oh, I don’t know why we would feel bad about it. Demand is a lot stronger than it has been in the past. We knew that they didn’t need the beans the last two years because the African swine fever was taking care of their herd. Why would they buy soybeans from us? They could get what they needed out of Brazil and they did that," he said.

Plus, it was more economical for China to buy soybeans from Brazil with their currency advantage.

Metz agrees this renewed demand has been good for American farmers after two years of losing Chinese soybean business due to the trade war.

“Our government and their government had issues. We were retaliating against the Chinese for some things that they were doing not necessarily in agriculture," he said.

However, he said soybeans are one of the top two products China buys from the U.S.

"So, if they’re going to retaliate, the way they retaliated against us was through soybeans," he said.

Scott is optimistic this demand will last for a while, and he’s encouraged about the future.

“I think they’ll continue to buy. As they (China) buy more corn and need soybeans to go along with it, that’s a great ration and we’d like to ship it all to them.”

He said the hope is that will translate into stronger grain prices and profitability for farmers for a while: “There’s a lot of optimism in agriculture right now.”