It has been quite a ride since 2003, when soybean prices visited $5. In 2012, they rose to nearly $17.50. A major bull market results in three major waves. The most recent move resulted in three peak waves at 2004, 2008 and 2012, before the five-year downtrend in which we find ourselves.
We saw and heard the difficult early growing season and deteriorating crop ratings with an attempt to break the downtrend. The change in weather pattern that began after the first week in July thwarted the breaking of the downtrend. In the process, soybeans have given back the gains they made that began with the monthly key reversal buy signal in March this year.
Soybeans have come full circle not only from this year’s price rally but back to the familiar two-year range of $8 to $10 per bushel that occurred from 2008 to 2010. It took the droughts of 2011 and 2012 to allow an upward breakout for the final leg of 2012.
Déjà Vu. An eerie similarity exists in 2017. Observers thought a weather-induced rally would relieve supply pressure. The August report on yields from USDA’s National Agricultural Statistics Service squashed that theory. Concerns have emerged about the future of prices should the crop finish well. In addition, FSA data thus far implies final planted acreage for soybeans could increase another 750,000 to 1 million acres, which would add another 45 to 50 million bushels to the supply. Demand has increased, too. World production in 2005 was 221.2 million metric tons (MMT) with global demand of 215.7 MMT and carryover of
54.2 MMT, according to Informa Economics. Contrast that with 2017/18: We have 351 MMT of production compared to 351.7 MMT total use with global carryover of 93.9 MMT. Production has grown 131 MMT in 12 years; demand has risen 119 MMT.
In spite of a huge South American crop this spring, and a seemingly near-trend crop on higher U.S. acres, global ending stocks will drop from 94.6 MMT to 93.9 MMT, Informa says. Only 60% of global growth in soybeans, soy meal and soy oil links to China. Most countries use more soybeans today than 10 years ago.
Bear Necessities. If South America had failed to experience record production, or the U.S. had not increased production by 6 million acres, the supply-and-demand situation would be less bearish. Global demand is increasing by 250 to 300 million bushels per year, so we need 5 to 6 million acres more production from somewhere each year.
A good finish to the U.S. crop will mean combined North and South American stocks on Sept. 1 will be sufficient to meet that incremental yearly demand without additional acres in either hemisphere. But that will not take pressure off of South America to harvest an average crop in 2018. USDA’s October reports will have huge price and acreage implications for 2018.