Weather, Stocks, and Speculation Drive Soybean Price Decline

Jan 11 2024

The soybean market has begun this year where it left off in 2023, with prices for the March 2024 contract sliding to $12.36/bsh in yesterday’s trading. A combination of positive weather conditions in South America, recovering stock levels and speculative selling have pushed soybean prices to their lowest level since December 2021.

Weather Lifts Expectations

Brazil and Argentina are two key nations in the global soybean trade and reports of incoming rain have lifted sentiment for the crop in both nations in recent days. In Brazil, which is responsible for over 50% of global soybean exports, analysts have trimmed expectations for the crop and export total in the upcoming season. At one point forecast to be greater than 160 million tonnes, the country’s crop is still expected to be a record high at over 155 million tonnes and recent rains have settled concerns that this number could be revised much lower.

Meanwhile in Argentina, the country has recovered significantly from the drought which decimated last year’s crop. Following recent rainfall, the Rosario Grain Exchange has increased its expectation for the country’s soybean crop by 2 million tonnes to 52 million, thereby making up some of the shortfall from its neighbouring Brazil. The positive South American supply sentiment arrives on the back of a solid US crop last year and much healthier supply levels in the wider market.

Chicago soybean stocks

Stocks Recovering

Soybean inventories have been drawn down during the course of the past three years due to high prices. However, Chicago Soybean CME stocks have been on an upward trajectory since late October and have recently reached the highest level since May 2021, as the graph above shows. Simultaneously total soybean use has declined significantly since summer 2023, as per WASDE reports. This shift in balance provides a reminder that despite the extreme volatility seen in many commodity markets in recent years, the adage ‘high prices cure prices’ remains a valuable perspective.

Speculative Sell Off

The downward price influence of the positive fundamental supply outlook has been compounded by speculative selling of CME soybean futures. The net-long ratio of Non-Commercial Positions reduced significantly in the final six weeks of 2023, as shown in the graph below. As Karen Braun noted for Reuters, the price decline in the opening five sessions of 2024 marked the fastest fall for soybean prices over that time period since 1984. The global soybean trade has evolved significantly since that time, but nonetheless it illustrates the extent of the downward momentum in the market at present.

Soybean cot

WASDE Update due on Friday

A potential obstacle to the bearish sentiment in soybeans is the latest WASDE Report, due to be published on Friday 12th January. In her latest column, Braun noted that prices have risen on the back of this report for 8 consecutive years, so further downward movement this week would mark a break in an established pattern for the market. Another factor to watch in the January report will be the shifting pattern between US and Brazilian exports. The latter country has increasingly become the primary source of soybean imports for China over the last decade. US soybean exports for the week ending 4th January were less than half of the figure for the equivalent week in 2023 according to Export Inspections data from the USDA.

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