USDA provided a bullish 1 bu. per acre cut to soybean yield in Friday’s report which resulted in 90 million bu. being shaved off ending stocks.
However, there are two big headwinds for the soybean market that may limit a rally moving forward.
1. A record crop in South America
Joe Vaclavik, president of Standard Grain, says the biggest is a record soybean crop in South America.
“The world situation is still kind of an anchor on the whole complex. You’ve got these big South American crops expected, big healthy global balance sheets for soybeans,” he says.
USDA left production in the Southern Hemisphere unchanged in Friday’s WASDE but has Brazil pegged to produce a record 169 MMT soybean crop and Argentina at 52 MMT.
Jim McCormick, a partner at AgMarket.Net, says private estimates are even higher for Brazil.
“I think at this point, Brazil will have a huge crop, 172 to 175 MMT, that’ll more than offset at what we lost here in the U.S.,” he says.
The agency also projected world ending stocks at 128.4 MMT, which is down 3.5 MMT from December, but is still a record.
McCormick says, “It is a record at this time. And you know, like I said, even on stocks to use ratio, I think maybe the second highest ever. So yes, we’re very burdensome at this point in time without a weather problem.”
Dryness in Argentina and Southern Brazil have been a concern for the soybean market but there are some rains in the extended forecast.
Vaclacik says, “There are some potential crop problems in South America, Southern Brazil, and then the north to northeastern part of Argentina. Those areas have been dry. But there is rain in the forecast. And if the rains come back as advertised as the weather models are indicating, I don’t think there’s much of a problem.”
2. A potential tariff battle
McCormick says the soybean market is particularly sensitive to a trade war with China and other countries.
Vaclavik says tariffs in the new administration are a big unknown.
“Trump, he’s making very broad threats. I’m hoping that the goal of the threats is to force a negotiation and that we don’t have to get into a trade war,” he adds.
“With the tariffs. He has suggested that there will be at least a hundred executive actions orders that he’s going to implement on January 20th. So we are gonna get a lot of news fast, it looks like it. That could exasperate the problem depending on how this goes,” says McCormick.
And he points out that President Trump slapped tariffs on China six years ago that are still in place and they is if he will use the tariffs to fund his tax policy.
“Some argue it’s going to be a way to finance the tax cuts that he wants to extend, which is going to cost about $5 trillion. So if he’s using the tariffs as a source of financing for the tax cuts, it’s going to be awful hard to reduce them once he puts them on. Once he puts them on,” he adds.
During the last trade war soybeans fell into the $8 level.
So if these factors come together how low could soybean prices fall in 2025?
According to McCormick, “I still think with the record Brazilian crop, South American crop in general, you could see easily pushing back down toward the low nines.”
