In 2016 soybean prices had their best year since 2012. But a repeat performance for the oilseed in 2017 may prove difficult thanks to challenges on both the supply and demand fronts.
Front-month Chicago soybean futures finished last year up 14 percent from where they began the year, peaking at 35 percent in June. The most active March 2017 contract is up nearly 18 percent over where last year’s contract sat a year ago today.
Speculators opened 2017 with a net long position of 94,247 contracts in CBOT soybeans futures and options – very similar to where both 2013 and 2014 began, but considerably different from 2016.
Although this long position has decreased five weeks running, optimism could wane even further in the coming months, especially since the fundamentals are not exactly bullish.
Of the last five years, soybean prices performed most poorly in 2014, and there are many signs that suggest 2017 could follow in its footsteps and start heading south.
More Beans in the Ground
Major global soybean growers have incentive to increase planted area in 2017 – most notably the United States, the world’s largest producer.
The U.S. Department of Agriculture pegged this year’s acres to rise 1.8 million acres from 2016’s record area, but many analysts believe increases closer to 5 million acres could be in store. This is based on the record profitability margins over competitor crop corn as implied by the futures price ratio of new-crop soybeans to corn.
Come spring, it may become more difficult for soybean bulls to make their case if U.S. farmers greatly increase plantings and sown area ends up in the upper 80 million-acre range.
A similar scenario was present in 2014 as the new-crop soybean-to-corn price ratio opened the year at the highest level in eight years. That summer, U.S. soybean acreage rose 6.4 million acres on the year.
As such, front-month soybean futures topped out for the year on April 30, and then sharply tumbled by mid-to-late summer, anchored by big yields.
Toward the end of 2017, more soybeans are likely to be sown in No. 3 producer Argentina for its 2017/18 campaign than were planted this go-around. The country’s soybean export tax will be incrementally reduced beginning in 2018 – from the current 30 percent to 18 percent by 2020 – encouraging farmers to favor the oilseed over its grain rivals.
Big Crops Off the Bat
Back in early 2014, a record 2013/14 South American soybean crop was expected to eventually flood the market – which was indeed the case. This year, analysts predict that leading exporter Brazil will raise a massive 103 million tonnes of soybeans over the next several months.
Midway through 2014, U.S. soybean yields were on track for an all-time best – on top of the rise in area. National yield ultimately topped the previous record by 8 percent that year, adding more pressure on soybean futures.
But here is where soybean prices could find a loophole in 2017.
Though it would not be impossible, it is reasonable to assume that U.S. 2017 yields that end up matching last year's staggering 52.5 bushels per acres would be an extremely difficult feat. If U.S. farmers plant 88 million acres of soybeans, national yield must reach 50 bpa to match 2016’s record harvest volume.
Therefore a decline in U.S. production is very realistic in 2017 and given the narrow margin of error between supply and demand, a smaller harvest could quickly vaporize carryout and boost soybean prices – even if yield ends up in the very respectable high-40 bpa range.
At the end of 2014, the 2014/15 South American crop appeared likely to set a new harvest record by a mile yet again – which of course it did – further justifying the lower track of soybean futures at year-end. Conditions in Brazil and Argentina heading into the 2017/18 season will largely influence how soybean prices round out 2017.
Supply Outpacing Demand?
Global soybean demand is undoubtedly at all-time highs and continues to grow, but the year-on-year rate at which overall use is increasing is not as high as a couple years back.
USDA predicts global soybean use in 2016/17 will be 4.8 percent larger than last year, but between 2013 and 2015 this figure was in the 7 percent to 10 percent range – indicating a more rapid yearly growth in world demand during that time.
At the U.S. level, this disparity is even more pronounced. The current expected yearly growth in soybean use of 4.2 percent pales in comparison to the 11 percent to 12 percent that was observed back in 2013/14 and 2014/15.
And this is going against a 2016 U.S. crop that was 11 percent larger than that of the previous year. At the world level, the 2016/17 soybean crop is slated to be 8 percent larger on the year.
Soybean prices garnered a little support back in 2014 as both projected world and U.S. soybean use only increased as the year pressed on – some 2 percent and 6 percent, respectively, from 2014’s start to the more final figure later in the year.
But this could be where 2017 falters.
It is uncertain if USDA will steadily increase U.S. soybean demand in the second half of 2016/17 as has been the case in recent years, particularly since the export target was already set relatively high.
If 2016/17 U.S. soybean use does not increase incrementally as occurred in preceding years, carryout is unlikely to plunge at the end of the marketing year as the market has grown to expect.
This could mean that U.S. soybean stocks grow to a 10-year high and would perhaps provide the biggest blow of the year to soybean prices.