Every bushel drop in the national yield will drop U.S. soybean production by 75 million bushels.

China has been in the news a lot in the last few months. The news has been short-term and long-term positive for U.S. corn, wheat and soybean farmers. Many of the policy efforts that the American Soybean Association and National Corn Growers Association members have been working on have paid huge dividends this year.

The first announcement was that China's stocks of corn and wheat are much larger than earlier forecasts. USDA and the United Nations Food & Agriculture Organization (UNFAO) both confirmed that the internal grain inventories of corn and wheat are two to three times as large as earlier projections. China has and will maintain large inventories of wheat, rice and corn as a strategic food reserve. The policy has been, and will continue to be, to keep this large strategic reserve.

The second announcement was that with a major drought this year, the Chinese corn crop would drop from 4.9 billion bushels to just 4 billion bushels. This 900 million bushel drop in production will likely take China out of the world corn export market later this year. The drought has also reduced the projected size of the wheat crop in China from 3.8 billion bushels to 3.4 billion bushels. This may lead to an additional 70-100 million bushels of U.S. wheat exports.

Finally, by this fall, China will likely be allowed entry into the World Trade Organization. This will probably lead to additional soybean, soybean meal and soybean oil purchases next year. China will no longer be allowed to subsidize corn exports — and may even turn into a net importer next year.

China's economic growth is an important factor that will determine how large soybean imports will be in future years. China's economy went through a major slowdown with the economic crisis that hit all of southeast Asia in 1997-1998. Just this year, many of the Asian economies have finally turned positive if you measure employment figures and Gross Disposable Income. A stronger Chinese economy and improving meat demand will result in even larger global soybean imports in 2001-2002. China continues to run a huge balance of payment surplus with the U.S. and one positive way to balance this would be to sell them a lot more soybeans — at a higher price.

None of the three market factors mentioned above will turn the market higher immediately. But if the Chinese economy remains strong, look for future U.S. farm exports to grow.

The very bearish soybean fundamentals that pressured soybean prices lower early this year have certainly changed. As the chart at left points out, demand has improved; the large increase in crush and exports next year in our projections will tighten ending stocks. If any weather problems develop and ending yields drop by 1-2 bu/acre, look for a significant rally in soybean prices.

Every bushel drop in the national yield will drop U.S. soybean production by 75 million bushels.

What to do? Unless and until your new-crop soybean bid gets close to the loan level, go slow on new-crop sales. Locking in a large LDP (if one is available) and then selling the carry ahead into January-March 2002 looks like the right move again.


Alan Kluis is president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, P.O. Box 15086, Minneapolis, MN 55415-0086; or call 800-345-7692.