Soybean Futures Slump Below $11 Amidst Favourable Supply Conditions and Weak Export Demand
In mid-July, soybean futures dipped below $11 per bushel for the first time since November 2020, reflecting more favourable supply conditions and weak export demand. The U.S. Department of Agriculture (USDA) and other significant analysts have highlighted a glut in the global market, sparking speculation that prices might plunge into single-digit territory for the first time in almost four years.
The "King of Beans" and Its Global Significance
Soybeans, often called the "king of beans," are a crucial agricultural commodity. They serve as a low-cost protein source for animal feed, an ingredient in various food products like tofu and soy milk, and a biodiesel component for industrial applications. Originally popular in Asia, the Americas now dominate soybean production, with the United States, Brazil, Argentina, Canada, Paraguay, and Uruguay collectively accounting for over 85% of global production.
Soybeans are the leading oilseed crop in the United States, accounting for 90% of the country's oilseed production. The remaining 10% includes cottonseed, sunflower seed, canola, rapeseed, and peanuts.
A Downward Trend in Soybean Prices
Soybean futures have been on a steady decline for over two years. Prices peaked at nearly $17.30 per bushel in May 2022, marking a near-decade high before falling below $11.00 per bushel by mid-July 2024. This trend aligns with the broader bearish sentiment in the grain market. The Bloomberg Grains Subindex, which tracks futures for corn, soybeans, and wheat, has lost 17% this year, trading at its lowest since December 2020. In contrast, energy and metals indexes will rise in 2024.
Favourable Supply Conditions
Favourable supply conditions have significantly lowered soybean prices. The USDA's latest "World Agricultural Supply and Demand Estimates" (WASDE) report indicated an increase in global soybean stock beginning in the 2024–25 marketing year. The overall supply outlook remains strong despite lower stocks for Argentina, Brazil, and Paraguay offsetting higher stocks for China.
In the U.S., the USDA's National Agricultural Statistics Service's (NASS) "Acreage" report revealed that 86.1 million soybeans were planted for the 2024–25 marketing year, a 3% increase from the previous year. According to the USDA's July crop outlook report, the U.S. soybean supply was 4.8 billion bushels, 8% higher than last year but 20 million bushels lower than last month's forecast. Consequently, the USDA lowered its forecasted U.S. season-average soybean price for 2024/25 to $11.10 per bushel from $11.20 the previous month.
Bearish Market Sentiment
Bearish sentiment in the soybean market is also evident from the record net short positions accumulated by speculators in soybean futures and options contracts on the Chicago Board of Trade (CBOT) exchange. For the week ending July 9, net short positions reached 172,605 futures and options contracts, up from 140,926 the previous week. This significant short-selling activity reflects the pessimistic outlook for soybean prices.
Impact of Weather and Policy Changes
Expectations that tropical storm Beryl would bring much-needed rain to dry areas have also pressured soybean prices, raising the likelihood of higher crop yields. Additionally, extreme weather events in South America, such as flooding in Brazil, have influenced market dynamics. Despite these challenges, Brazilian soybean exports reached 13.9 million tonnes in June.
Brazil's soybean production outlook remains robust, with the Brazilian Association of Vegetable Oil Industries (Abiove) raising its estimate for the 2023–24 crop to 153.2 million tonnes, up from 152.5 million tonnes in June. A recent survey by Latin American agribusiness consultancy Safras & Mercado projected Brazilian soybean planting intentions for the 2024–25 season to increase by 1.9%, potentially leading to a record production of 171.5 million tonnes.
Conclusion
The soybean market is navigating a complex landscape characterised by favourable supply conditions, weak export demand, and significant speculative activity. While prices have plummeted below $11 per bushel, the outlook remains uncertain, influenced by weather conditions, policy changes, and global market dynamics. As the year progresses, market participants will closely monitor these factors to gauge the future trajectory of soybean prices.