Soybean Markets – Turning of the Tide?
Written for Sevita by Kendra Dauer, Risk Management Consultant, FCM Division of StoneX Financial Inc.
The Tide
Following the price decline in December, the soybean market seemed to find some footing through the flip of the calendar. New reports that China was beginning to auction off state reserves – this would make room for China’s new soybean purchases from the U.S. and in the market’s eyes ‘new demand.’ Using the quotations is intentional because, as we know, the USDA had already plugged in China demand into the balance sheet. And with their nonexistent purchases in the first half of the marketing year, the ‘commitments’ they made to purchase soybeans – in reality are just playing catch-up for demand the USDA was already expecting. Nonetheless, this changed the tide for the market as it found steadier waters ahead of the USDA report.
The Turn
The USDA released its January WASDE and Stocks report earlier this month – turning the market back to multi-month lows. The December 1 soybean stocks were estimated up 190 million bushels versus last year – with most of those stocks also sitting in the Western Corn Belt. Breaking down the balance sheet changes, the USDA elected to leave bean yields unchanged at 53 bushels per acre, when the market widely anticipated a reduction in yield, which is a record yield by 0.9 bushels per acre. With the slight increase to planted and harvested acres, production was seen up a touch from last month – but still an overall smaller production number versus the 24/25 crop. On the demand side of the balance sheet, there was a reduction to exports – which is justified due to our slow shipment pace thus far. Overall net changes increased bean carryout by 60 mbu to put ending stocks at 350 mbu. No matter which way I paint it, that large of a carryout number does not lead me to be bullish on the soybean market.
High Tide? Low Tide?
So, knowing all of this, what troubled waters lay ahead? Good news, after the initial reaction lowered, following the report, the soybean market seemed to have found a ‘bottom’ to the market. We continue to see purchases from China, again – this is demand that we already knew was going to happen, but it is positive reinforcement for the market. How deep is China’s demand? Sales data shows that China has met their 12 mmt purchase commitment as of last week. Brazil’s soybean crop harvest has started, one has to think that China pauses their U.S. purchases for now, to opt for cheaper South American supplies. Where do we go from here? The soybean market continues to lack a fundamentally driving story. Given the recent price action, we have seen in the market and the sort of ‘bottoming out’ that we saw last week, I would anticipate for the market to be comfortable in its sideways pattern until we get closer to the growing season.
It feels like steady waters ahead for the soybean market, until a new story comes along to cause ripples. The stormy seas we have experienced over the last six months should make for more confident sailors (producers and consumers). Both sellers and buyers have seen wide swings in the marketplace and know that having price targets in mind and orders working is the best practice.
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