Reuters – A rain-damaged soybean harvest in the United States Mississippi Delta region is heaping more pain on farmers already suffering from a damaging trade war between the U.S. and China that has dragged prices to lows not seen in a decade.
Why it matters: Soybean growers in hard-hit regions may have to pay penalties for undeliverable contracts, compounding problems of poor prices and international market disruptions.
Late-season storms, including bands of showers from Hurricane Florence, soaked ripe soybeans from Memphis, Tennessee, to northern Louisiana in early October, enhancing mould and fungus growth and causing some beans to rot in their pods, grain traders said.
Now those soybeans do not meet the market’s crop quality guidelines, so farmers who sold soybeans through forward contracts are facing a penalty because they cannot deliver beans with the quality required, they said.
The crop quality woes come as farm income has plunged by half over the past five years and as the deepening U.S.-China trade war harms demand for soybeans, the most valuable U.S. agricultural export product. China bought US$12.3 billion of the US$21.5 billion in U.S. soybean exports in 2017.
“The export market’s not in a good position to take a lot of the off-grade quality this year because of the issues we’re having without the Chinese (market),” said J.O. Norman, vice-president at Oakley Grain in North Little Rock, Arkansas, which operates six elevators in the region.
China halted purchases after slapping 25 per cent tariffs on U.S. shipments on July 6 in retaliation for U.S. tariffs of some of its goods. Since then, China has been drawing nearly all of its soybean needs from Brazil.
Normally, grain elevators and shippers can compensate for damaged soy by blending it with higher-quality beans to meet export specifications that require less than two per cent damage. But high-quality beans are in very tight supply in the Delta this year because weak export prices are discouraging Midwest elevators from shipping them south.
“The damage we’re seeing is only like three or four per cent, which is manageable in a normal year. But we don’t have the export market so it’s been hard to get good beans,” said a grain buyer at a Mississippi elevator who asked not to be named because he is not authorized to speak to media.
Elevators across the Delta have cut bids for soybeans to discourage a flood of farmer deliveries until demand improves.
Quality discounts have also widened due to the extent of the crop problems and the lack of higher-quality blending supplies, grain handlers said.
Oakley Grain was bidding $7.79 per bushel for spot deliveries to its North Little Rock and Pendleton, Arkansas, elevators in late September, the lowest price in at least six years, and quality discounts have at least doubled.
Beans with 3.1 to four per cent damage are now facing discounts of 20 cents per bushel, compared to 10 cents normally, and beans with 4.1 to five per cent damage are being docked 35 cents, up from 20 cents previously.
River elevators in need of soybeans for blending or applying to existing contracts have bid aggressively for what little high-quality soybeans are available. Some are bidding premiums of 10 cents a bushel or more over spot bids in the barge market, traders said.
Damaged soybeans are also being offered at deep discounts.
A package of three barges with 4.3 to six per cent damage was offered at mid-week at 30 cents a bushel below Chicago Board of Trade November futures, a barge trader said, well under export-grade bean values of around four cents above futures.
Exporters are also growing more cautious so as not to get hamstrung with unsellable soybeans.
Archer Daniels Midland is requiring additional federal grading of soybean barges loaded along the Mississippi River from Memphis and south, and all barges loaded along the Arkansas River, an extra grain inspection step to help ensure that high-damage beans do not slip into the export pipeline, traders said.
ADM did not have an immediate comment.