Soybean – Bulletin 3 – 2021 – Commodity Trading Major

PRICE MOVEMENTS & INVENTORY LEVEL

Source: Trading Economics

Source: CME Group & USDA

The current situation of the soybean market is that the US soybean prices are still increasing and are likely to continue in 2021. This increase is due to the fact that exports are still growing and that China shows a strong demand.

The graphs above confirm our statement from the last Bulletin, meaning that the supply is tight because of the end of the both major suppliers’ harvest, Brazil and US. Additionally, as already said, the production of soybeans in Brazil and Argentina is uncertain because of the La Niña phenomenon. Without forgetting the global pandemic crisis.

China is the most important US soybean buyer as they account for over 58% of total export according to the USDA. Additionally, China is expected to continue its intense purchasing as the country is expected to totally recover from the African swine fever disease.

US soybeans prices are expected to continue its increase as the domestic crushing are rising and the ending stock will be lowered.

The demand for soybean meal-based animal feed has increased because of meat exports and soybean oil increased because of the rise of biodiesel purchases.

As a reminder, the agreement between the United States and China suggests that China will buy at least 36.5Bn US$ worth of American agricultural product in 2020.

GLOBAL WARMING AND LA NIÑA

As we have seen this year, the harvest of soybeans has been altered by La Niña, which is a meteorological condition responsible for the low level of rainfalls resulting in a delayed plantation. The underlying issue might be more complex though, since global warming is known to be an accelerator of La Niña. In fact, scientists do not seem to have a definite answer, but the phenomenon could take place more frequently and be more pronounced, which could make the soybean production – and ultimately supply – even more uncertain in the next few years.

Since La Niña takes place in the Pacific Ocean and, one solution to meet the demand needs – and thus avoid price levels going through the roof – could be an increase in production in other major producing countries located elsewhere, for example in India and China, which could partially ensure its increasing local demand. One issue persists though, which is the fact that China is also hit by La Niña. Fortunately, analyses have shown that, over the long run, La Niña events tend to operate at the advantage of grain productivity in China. Moreover, The United States, which are the second largest soybean producers, could also increase the supply to balance the uncertainty ruling over Latin American countries.

Of course, increasing production requires a certain level of technological advance. It also requires a larger number of producers, which is why this process would require investments and government subsidies.

SUBSTITUTES

The primary uses of soybeans are food, biofuel and flour.

Soybeans are used for feed because they have a high concentration of proteins with ~48%. One of the substitutes for this use could be corn even though it has a much lower concentration of proteins with ~9%. Moreover, corn is cheaper than soybean. For a bushel of soybeans it costs US$ 12.64, which is three times the price of corn, US$ 4.51. Furthermore, instead of using soy flour, it can be replaced by wheat flour.

In order to replace the biofuel made by soybean, they can instead use crude palm oil but it is more expensive than soybean and has major negative effects on the environment like deforestation.

We can find some substitutes to soybean but none of them has better elements than this commodity.

RECOMMENDATION

Prices will continue to increase due to the high demand and slow supply. Moreover, the supply is uncertain since there are weather issues in Latin America. Another point we have to take into account is the tariffs between US and China with the election of Joe Biden who said that it was a failure and wants to do a full review of the agreements.

For all of these reasons, we recommend going long over the next month since the supply is uncertain but also low.

REFERENCES

China’s November soybean imports from U.S. surge one year after trade deal, 2020. Successful Farming [online]. [Viewed 29 December 2020]. Available from: https://www.agriculture.com/markets/newswire/update-1-chinas-nov-soybean-imports-from-us-surge-on-year-after-trade-deal

Commodities 2021: US soybean prices likely to rise on high exports, tight stocks | S&P Global Platts, 2020. [online]. [Viewed 29 December 2020]. Available from: https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/122220-commodities-2021-us-soybean-prices-likely-to-rise-on-high-exports-tight-stocks

CONSTABLE, Simon, [no date]. Bad Weather Could Hurt Soybean Crops, Lifting Prices. [online]. [Viewed 29 December 2020]. Available from: https://www.barrons.com/articles/bad-weather-could-hurt-soybean-crops-that-will-help-lift-prices-51608676202

Corn Prices – 59 Year Historical Chart, [no date]. [online]. [Viewed 29 December 2020]. Available from: https://www.macrotrends.net/2532/corn-prices-historical-chart-data

Explosive soybean price picture forming, analyst says, 2020. Successful Farming [online]. [Viewed 29 December 2020]. Available from: https://www.agriculture.com/markets/analysis/explosive-soybean-price-picture-forming-analyst-says

Palm oil and soy oil for biofuels linked to high rates of deforestation – new study | Transport & Environment, [no date]. [online]. [Viewed 29 December 2020]. Available from: https://www.transportenvironment.org/press/palm-oil-and-soy-oil-biofuels-linked-high-rates-deforestation-new-study

snd_cbt.pdf, [no date]. [online]. [Viewed 29 December 2020]. Available from: https://www.cmegroup.com/trading/agricultural/files/ht_charts/snd_cbt.pdf

Soybean Prices – 45 Year Historical Chart, [no date]. [online]. [Viewed 29 December 2020]. Available from: https://www.macrotrends.net/2531/soybean-prices-historical-chart-data

Brazilian soybean planting slowest in a decade despite rains: AgRural | S&P Global Platts, 2020. [online]. [Viewed 29 December 2020]. Available from: https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/101920-brazilian-soybean-planting-slowest-in-a-decade-despite-rains-agrural

Geosys How is La Niña impacting Brazilian and Argentina crops?, 2020. UrtheCast [online]. [Viewed 29 December 2020]. Available from: https://www.urthecast.com/how-is-la-nina-impacting-brazilian-and-argentina-crops/

LEMONICK, Michael D., [no date]. Global Warming May Worsen Effects of El Niño, La Niña Events. [online]. [Viewed 29 December 2020]. Available from: https://www.climatecentral.org/news/is-texas-toast

LI, Yanyun, STRAPASSON, Alexandre and ROJAS, Oscar, 2020. Assessment of El Niño and La Niña impacts on China: Enhancing the Early Warning System on Food and Agriculture. Weather and Climate Extremes. 1 March 2020. Vol. 27, p. 100208. DOI 10.1016/j.wace.2019.100208.

Group 3 – K
Maxime DOLLA, Mahona PENNA, Romane POUCHON