Historic Drop: Soybeans' Vigorous $1 Fall Thursday Reaches New Record

Soybean prices saw the fastest daily drop in history on Thursday. At one point before noon, soybean prices were down 60 cents. But then as the trading hours progressed, prices crashed vigorously, with July and August soybeans closing down more than $1 on Thursday. This tops any one-day record for a deferred contract.  

Extended price limits for soybeans did help matters. As the forecasts for cooler and wetter weather continued to point to a pattern change, prices plummeted, with extended price limits expanding the price moves possible in a day.

“I think that the idea that forecasts for the central and eastern Corn Belt will turn cooler and wetter is a big driving factor,” says Joe Vaclavik of Standard Grain. “I think that's certainly part of it. I think that's always an issue this time of year.”

Vaclavik says it’s not just weather that worried traders and fund managers. Other factors also fueled the historic selloff.

“There's been some talk that China may cut back on commodity speculation,” Vaclavik adds. “That could be an issue. I think that the fact that the Fed is signaling that they'll hike rates a little bit sooner than expected maybe as early as 2023. I think that's maybe an issue for some of these markets. And I think talk that the Biden administration and the EPA may offer some sort of exemptions to oil refiners in regards to biofuels, I think that's an issue. The stronger U.S. dollar maybe has something to do with the Fed stuff, too. So, there’s a lot of things that kind of resulted in a domino effect here.”

As the bearish news piled on to the market Thursday, the blame for the volatile price swings can partially be put on the weather; a weather market that is getting an earlier start than a typical year.

“Everything has been out of sequence this year,” says Bob Utterback of Utterback Marketing. “Since we had a counter seasonal fall rally, China has been the big manipulator in the marketplace. And I think they are still one of the ace in the holes for the bull, if they tend to come back and buy.”

Historic Drop

The one-day drop of more than $1 in July soybeans sets a new record.Utterback says as the November soybean contract fell to $12.52 on Thursday, it marked a $2.27 price move since June 7 when the soybean contract hit $14.80. Utterback says the only other time he remembers as violent of a move lower was in 1988, when the market saw multiple limit down days, but that happened in July instead of June. It's a price move Advance Trading's Brian Basting also recalls.

"On July 18, 1988, the July 1988 soybean contract fell $1.09 ½," says Basting. "It was during deliveries for the July contract and occurred on a Monday following some unexpected rain over the weekend. I remember that day very well."

Can Prices Recover to 2021 Highs?  

As the historic drop in prices lingers over the market, Utterback says a full recovery - to reach highs set just weeks ago - will be tough. 

“You've lost the momentum of this bull, and it’ll be hard to regain that excitement, because once the funds start liquidate their position, historically, they don't like to rebuild their position back up to the record highs,” says Utterback. “So, I think it's going to take some extraordinarily dry weather conditions to regain the excitement that we had less than two weeks ago.”

What will it take for the bulls to be back in the driver’s seat? Vaclavik says there’s one main factor, which is the same issue that deterred prices away from contract highs.

“I think you'll probably need some sort of weather event,” he says. “It’s certainly possible as we move forward here, there's plenty of time for a weather event. The crop is not made for trading forecasts and not whether that's already happened. “

Vaclavik says you can’t discount the fact below normal rainfall is already on pace for much of the Corn Belt, with severe drought conditions still plaguing the Northern Plains.

“You need a lot of things to come to fruition,” adds Vaclavik. “I think that things could happen in the outside markets as well, that that could help the grain markets. If we could get some of these commodities to stabilize; gold and silver were very weak at the end of this week. There were some other commodities that were soft. If you could if you could get a general attitude that the markets aren't necessarily so scared of these rate hikes two years out, that would probably help as well.”

Utterback thinks Thursday's price move was overdone, and it'll be key to watch what happens with the markets Friday.  Corn prices also saw pressure Thursday, closing limit down.