Chicago soybeans may have found fair market value if demand can be trusted -Braun
Repeats column first published on Wednesday. The opinions expressed here are those of the author, a market analyst for Reuters.
By Karen Braun
NAPERVILLE, Illinois, Aug 14 (Reuters) -Soybean prices were already on their way to a historical downward correction before suspicions of a record U.S. crop were confirmed this week, and the latest price levels could be satisfactory if demand is cooperative.
But that is a big "if."
CBOT November soybean futures SX24 notched an all-time low on Wednesday of $9.55-1/4 per bushel, the most-active contract’s lowest level since Sept. 2, 2020.
That follows the U.S. Department of Agriculture’s forecast on Monday that showed 2024-25 U.S. soy ending stocks rising 62% on the year to 560 million bushels, the third-highest ever and far above trade expectations at 465 million.
The huge stocks number resulted from a bigger soybean crop than anyone predicted, primarily due to an unusually large surge in planted acres.
Soybean futures have averaged $9.72 per bushel since Monday, the week’s lowest average price since $8.99 in 2020, which was the third consecutive year of sub-$9 prices in mid-August.
But when adjusting past prices for inflation, the $9.72 becomes the week’s lowest average price since 2006, in the very early stages of China’s soybean import boom.
The substantial weakening of prices over the last few months suggests the market was already bracing for a situation as bearish as what USDA revealed this week.
November soybeans have tumbled as much as 23% since the start of the year and they are trading about 26% lower than in mid-August of 2023. Both of those departures are the largest in at least three decades, though the new price levels seem to fit the fundamental setup.
NEW SCENARIO, NEW PRICE
The swelling U.S. soy supplies are less burdensome in context with demand. USDA’s latest estimates imply 2024-25 U.S. stocks-to-use at 12.8%, a five-year high and well above the prior year’s 8.4%.
That is only the fifth-highest ratio of the last two decades and it does not break the top 20 when considering the full 61-year dataset. Stocks-to-use during the U.S.-China trade war in 2018-19 had surged to a three-decade high of 23.4%.
Analyzing historical August stocks-to-use forecasts against the corresponding price levels suggests November beans somewhere between $9.25 and $10 per bushel given the current 12.8% outlook for 2024-25.
That means soybeans may already be hovering near fair market value, but the trade’s mistrust of demand could spoil that conclusion.
USDA’s projection of 2024-25 U.S. soy exports is very conservative relative to the crop size, but many industry members are skeptical whether U.S. exporters can capture enough business from top buyer China as recent sales have been slow.
Chinese soymeal futures this week fell to more than one-year lows amid high inventory levels, and yet more soybeans are poised to arrive from leading supplier Brazil. China’s feed demand has struggled in recent years while Brazil’s crop potential keeps expanding, both threatening the U.S. market.
CORRECTING IN 2025
Barring any unexpected stimulation in demand, U.S. farmers may have to slash soy acres in 2025 to prevent a further ballooning of domestic stocks, especially if the renewable fuel push that was supposed to lift soybean use continues to prove disappointing.
Farmers in 2024 increased soy area by 4% on the year while cutting corn by a similar degree due to better profitability potential for the oilseed. Despite the rise, this year’s soy plantings of 87.1 million acres are more than 3 million below 2017’s high.
Overplanting in 2017 and again in 2018, combined with the 2018 trade war that choked U.S. soy exports, led to all-time-high ending stocks of 925 million bushels in 2018-19.
The inadvertent correction of this situation started with severe flooding during planting in 2019, and farmers in 2020 eased up on plans amid the pandemic-driven price collapse. Combined, this wiped away more than 10 million soybean acres from original ideas.
It took a while for futures to respond meaningfully, as they stayed below the $10 mark from June 2018 to September 2020, though it was the resurgence of Chinese buying in mid-2020 that was the initial catalyst for bean prices to start their journey higher.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Graphic- U.S. soy stocks to use versus price https://tmsnrt.rs/4dmRBAh
Writing by Karen Braun
Editing by Matthew Lewis
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