It took just two years and a few fundamental revisions to change a dire outlook. In soybeans, we went from a steady 900 million bushel ending stocks to potentially little wiggle room.
A challenging growing season in the U.S. and a turnaround in Chinese demand facilitated a black swan event to change the outlook. See the table below and keep these highlights in mind:
- In 2019/20, acres collapsed in tandem with a drop in yields, which cut ending stocks by 400 million bushels.
- Record yields in 2020/21 and a 7-million-acre increase couldn’t offset a 525-million-bushel increase in exports.
- Carry-in to 2021 was cut by 80%, making 2021/22 production critical.
- In 2021, 90 million acres is the minimum to match demand.
- This dramatic change in the soybean outlook happened fast, making it difficult to believe a zero ending stocks figure is possible in 2021/22.
Speculation Becomes Reality
The Jan. 12, 2021, final numbers for U.S. production and a more accurate South American grain production outlook could be catalysts that turn speculation into reality. My enthusiasm could be tempered if the spring price relationships favor soybeans. In that case, we could see a massive shift in the northern Plains from spring wheat to soybeans. Soybean-on-soybean production in the Midwest is also possible, as $10+ soybeans compete well with sub-$4 corn.
We need excellent 2021 production. A sense of urgency will come if the South American soybean harvest continues to deteriorate into February. The Argentine corn harvest coincides with U.S. planting; the Safrina corn crop is harvested during our July weather markets. This makes it too late for us to respond to a production reduction.
The timing of global planting and harvesting of crops is always a concern, but this year promises to rival the past eight years in terms of importance.
Jerry Gulke farms in Illinois and has interests in North Dakota. He is president of Gulke Group, a market advisory firm. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
