Price Volatility in Soy Complex Will Persist

October 18, 2011 10:53 PM
Price Volatility in Soy Complex Will Persist

On Oct. 31, the U.N. Population Fund estimates, there will be 7 billion people on Earth to feed. The world’s growing population and its resulting demand for food, coupled with tight stocks of soybeans and continued concern over the health of the global economy, has created unprecedented volatility in the soybean and soybean meal markets.

And even though last week’s World Agricultural Supply and Demand Estimates held no big surprises for the soybean market, prices will likely continue to log large moves both up and down. In its report, USDA reduced harvested acreage by 100,000 acres to 73.7 million and lowered its yield estimate from 41.8 bu. per acre to 41.5. The reductions resulted in a 25-million-bushel drop in production to 3.06 billion bushels. And 2011-12 ending stocks fell 5 million bushels below USDA’s September estimate to 160 million.

So why has the soybean complex been so volatile?

Concerns over global economic health and the teeter-totter concern of inflation versus deflation continue to drive the soy complex. Since Aug. 10, the nearby soybean meal contract has fluctuated between $300/ton and $382/ton, says Ross Brainard, a merchandiser with Commodity Specialists Co., Kansas City. "The sheer volume of world money that is in the market creates massive movements whenever there is concern or relief over the global economy," Brainard says. "The world economy is driving the market more than crop fundamentals." 
Brainard and others do not expect that to change. "Even if supplies build, with 7 billion people on Earth, the market will stay very volatile," he adds. The U.N. projects world population to reach 8 billion by 2025 and 10 billion by 2083.
"The market is very sensitive to the Chinese and the global economies," notes Matt Roberts, an agricultural economist with the Ohio State University. "Over the past few months, the soybean market has really responded to the debt crisis in Europe and changes in U.S. economic prospects." When economic reports are released that portend slower economic growth, soybean prices soften. "The sensitivity is much more pronounced than it has been, but there is also more global economic uncertainty," he says.
If soybean stocks were more ample, Roberts argues, volatility would not be quite as pronounced as it is today. He expects prices to drift lower between now and Thanksgiving, but then, as the market turns its attention to 2012 plantings, prices could strengthen, he says. "The market will want a lot more corn to be planted, and that will create strength in corn prices," Roberts says. "Soybeans will need to defend acres, which will cause strength to come into the soybean market as well."

Ideal harvest

Even though soybean harvest is still under way, crop concerns are quickly evaporating. "Weather has not been as negative to harvest as people were thinking it would be in mid- to late August," Roberts notes, which added recent downward pressure to the bean market.
"This has been one of the easiest and best harvests for soybeans with little moisture," Brainard says. But with prices having dropped to $11.53/bu. from $14.63/bu., farmers are holding onto their soybeans, which has created short-term issues for soybean processors.
As of Oct. 16, 69% of the nation’s soybeans had been harvested, compared with a five-year average of 61%, according to USDA’s latest Crop Progress report.

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