Factors affecting the soybean markets

March 17, 2022 | Kriss Nelson

To help understand the dynamics of what is unfolding in today’s markets, an agricultural outlook panel discussion was held during last week’s Commodity Classic held in New Orleans.

“We have to consider the agricultural outlook to help understand as those high price times we have right now, those may not last forever. At the same time, the lows we have experienced, those don’t last forever,” says Mac Marshall, vice president of market intelligence for the United Soybean Board and the American Soybean Association, who served as moderator for the event.

Scott Gerlt, economist for the American Soybean Association, says there are many factors affecting the soybean market.

One is China’s recovery from the African swine fever, which decimated the country’s hog population.

“We saw hog prices jump extremely high in China,” says Gerlt. “Hog margins were very good in China, and that margin has gone away.”

Hog producers in China are currently facing negative economic returns but are relying on U.S. soybeans to help fill the need for feed, Gerlt says.

“In the short run, there is excellent (soybean) demand from China,” Gerlt says. “They really need soybeans, and it has been reported they are releasing some of their strategic reserves (of soybeans) to help support their large hog herd.”

The drought in southern Brazil, Argentina, and Paraguay is affecting soybean harvest. Production has been shifted downward by about 30 million metric tons (1.1 billion bushels), which also affects the price of U.S. soybeans.

“We are at the same price, or even cheaper than Brazil right now in soybeans because of those production issues down there,” says Gerlt. “We have low international stocks of soybeans at the moment with strong international demand, so we are seeing very high soybean prices.”

Looking to the future, Gerlt mentioned the excitement surrounding renewable diesel.

“We have seen a lot of companies wanting to get into that space,” Gerlt says. “Renewable diesel is changing things.”

With an increasing demand in the future for soybean oil, there has been a lot of announcements for new soybean crushing facilities.

“We are tracking a 20% increase of announcements for new soybean crushing facilities at this time,” says Gerlt.

Some of these facilities are in the Midwest, while others are planned in close proximity to renewable diesel facilities. Specifically, the Northern Plains are seeing an influx of soybean crushing plant facilities. An area, Gerlt says, has typically not had that capacity before.

Cs for Commodity Classic

Consumer, supply chain, conversion, caution, competition made up some of the “Cs for Commodity Classic” topics discussed by Erin Borror, an economist for the U.S. Meat Export Federation (USMEF).

Borror says the consumer demand for U.S. beef and pork, both in this country and worldwide was robust throughout the pandemic.

“It’s been proven to us the consumer really does prefer our (U.S.) products,” Borror says. “A change in habits, cooking more at home – it was our products they chose.”

Supply chain, labor and logistical issues, Borror says, have been a huge headwind. Producers are showing a bit of caution and slowing expansion, specifically within the pork industry.

“There are concerns with China’s hog prices and their herd rebuilding going on and just concerns of African swine fever in general,” Borror says. “There are concerns of Prop 12 and productivity issues. We know pork production has slowed from its torrid growth pace, but there is an optimistic outlook. We will have hogs and cattle to eat all of this soybean meal.”

Last year, red meat exports hit $18.7 billion, a 22% increase over 2020.

“We think that momentum can sustain,” says Borror.

There was also growth in exports on the pork side except in China.

“We were able to offset that decrease to China—which we knew was coming—by growing into our other main markets,” says Borror. “We knew there was pent-up demand because China pulled away from the rest of the world, but also there is continued growth out there because these countries are increasing their per capita consumption. The demand side is there.”

Ukraine-Russia war and its potential impact on the market  

Seth Meyer, chief economist for the U.S. Department of Agriculture, reminded the audience of the state of markets leading up to the recent events in Ukraine and Russia.

“We had tightened markets up over the last 18 months in terms of global supply availability,” says Meyer. “That is really what has been providing some price strengths up until the latest events in Russia and Ukraine.”

Tracking prices back to Aug. 2020, there was a very negative sentiment about where commodity prices were headed and how the industry would look.

“Then the Chinese started coming into our market. Demand for corn and soybeans was robust. We had good trade demand and good domestic demand. The rest of the trading markets saw rising prices and didn’t back off. The good news is China came back in, and the rest of the customers didn’t back off despite prices rising.”

Meyer says they are struggling at USDA to understand the impacts on the market from Russia and Ukraine.

“You hear any number of conclusions based upon this and folks making vast assumptions about different things. I don’t think anybody knows,” Meyer says.

The crop USDA is dealing with is the crop Ukraine has in storage. Because that crop cannot be shipped, it has been taken off the market.

“We have taken pretty big chunks of grain off the market for wheat and corn for Ukraine, and also assuming sanctions will have a role in slowing Russian’s ability to market its grain as well. That is short-term,” says Meyer.

What could be some longer-term effects?

The cropping calendar in Ukraine is similar to ours in Iowa.

“These folks need to get out there in the field and start their work at the end of April, end of May and getting nervous if they have to do it past June 1,” says Meyer. “There are concerns about their ability to get diesel fuel, their ability to get seed, fertilizer. This is the next step we will have to watch when we start to think about the longer-term effects, not to mention infrastructure damage Ukraine may be suffering.”

Meyer says the Russia-Ukraine war will also lengthen the period of uncertainty surrounding the cost of input prices for American farmers.

“This is something we will continue to watch, particularly for the crop going into the ground but also thinking further out to the fall applications of fertilizer,” says Meyer.

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