Markets can tell a story, especially after a journey through headwinds, political strife and wars. March soybeans did that in 2022.
March 2023 futures reached their zenith in early June 2022, only to break and gap below the six-month trend line, signaling prices had gone high enough. A virtual collapse ensued, erasing gains that started on Jan. 3, 2022.
On Dec. 27, 2022, after another six-month rally, March soybeans made a volatile daily attempt to rally back to the high-water mark for prices set on June 21. But the subsequent collapse told us volumes about the price discovery process.
Here are a few key observations:
- The strength in soybeans was likely irrational exuberance based on China’s relaxing COVID-19 restrictions.
- The hype on Argentina weather took soybeans high enough to curb demand.
- It is difficult to know how low prices can go. It easier to judge where they likely won’t go — above the previous highs — as the rains in South America are making the dry areas smaller.
- If traders were skittish about the irrational soybean prices in 2022, they will be even more so with how we ended the year.
- In this process, new-crop November 2023 soybean futures failed to close solidly above $14 — a significant event itself.
RETURN TO THE START
Soybean prices rose to nearly exactly where they were six months ago. This is especially important given what we’ve been through this past year. But, the price on Jan. 2, 2023, was already nearly $1.50 per bushel higher than in 2022.
USDA estimates soybean production in South America will be 37 million metric tons (MMT) greater than last year, and corn production 13 MMT greater.
Overcoming overhead price resistance will prove a new paradigm shift to higher prices versus the past two years. Increased costs require it, and just maybe the consumer can embrace it. If not, ag markets will contract and agriculture will experience a reset similar to the overall global economies, giving sustainability a new meaning.
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.
