Which Way for Soybean Prices

Which Way for Soybean Prices
Darrel Good, Agricultural Economist - University of Illinois

Soybean prices have been on a roller coaster over the past three months. Todd Gleason has more on which direction is most likely to maintain control.

The price swings reflect changing expectations…
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The price swings reflect changing expectations about the size of the U.S. soybean crop, uncertain U.S. export prospects, and the potential impact of the weather as it relates to El Niño. Depending on how those factors unfold, soybean prices could move substantially in either direction over the next six months. Here’s the case University of Illinois Agricultural Economist Darrel Good says that can be built if one believes the price of soybeans will move lower.

Good :40 …as was the case this year.

Quote Summary - The case for lower soybean prices starts with the expectation that the U.S. average soybean yield for the crop currently being harvested will exceed the 47.2 bushels forecast in the USDA October Crop Production report, resulting in a larger crop forecast. That expectation is based on continuing reports of high soybean yields in many areas as harvest progresses. In addition, there has been a history of the final soybean yield estimate in January exceeding the October forecast in years when the September forecast exceeded the August forecast and the October forecast exceeded the September forecast, as was the case this year.

That pattern has happened 11 times in the past 40 years, with the January estimate above the October forecast in nine of those 11 years. Those expecting lower prices, also, point to the potential for another record soybean harvest in South America. Early estimates put Brazil on pace for a 100 million metric ton crop, much of which would be exported to China. That combination would point to U.S. soybean exports during the current marketing year less than the current USDA projection of 1.675 billion bushels. A larger crop estimate and smaller exports, then, would point to larger year-ending stocks and lower prices.

Naturally, there is the other side of the market. The one that points to a higher price for soybeans.

Good :45 …shortfall in production there based on the El Niño weather event.

Quote Summary - The case for higher soybean prices starts with the expectation that harvested acres of U.S. soybeans will be less than the USDA’s October forecast, limiting any future increase in the estimated size of the crop. The second argument for higher prices is that export demand for U.S. soybeans has actually been quite strong in recent weeks and points to stronger overall export demand. While current export activity is encouraging, the potential for U.S. soybean exports this year will hinge at least in part on the size of the 2016 South American harvest. Those friendly to soybean prices have expectations of a shortfall in production there based on the El Niño weather event.

This friendly stance is enhanced by what some see as the tendency for USDA to underestimate U.S. soybean exports early in the year. USDA’s forecast of marketing year exports in the October WASDE report, factually, have been less than actual exports in 17 of the past 25 years. The difference was 50 million bushels or more in 14 of those years and exceeded 150 million bushels in five years. Finally, those building a case for higher prices point to the end of the El Niño. It could result in late summer weather that is adverse for U.S. soybean yields.

As for Darrel Good, well he sums it up this way. The uncertain soybean supply and consumption prospects suggest soybean prices may continue to trade in the wide range of the past three months. Fairly dramatic changes, however, would be required to alter prospects for abundant U.S and world inventories and push prices above the high experienced in July. Prices at that level will likely only be generated by production issues and are not expected in the near term. Modest short-term rallies based on other factors, however, are more likely.