Inside the Market

It wasn't that long ago I was explaining at fall farm shows how U.S. soybean prices had a limited bullish opportunity ahead of us, at least until Brazil's next harvest in late January and February. Thanks to the heavy popularity of corn acres in 2023, U.S. soybean production was limited to 4.165 billion bushels (bb), the lowest in four years. In September, USDA estimated 220 million bushels (mb) of U.S. ending soybean stocks for 2023-24, the tightest supply situation in eight years.

We all knew Brazil was the next production threat, and USDA was estimating the world's largest soybean producer would come up with another record soybean crop in February, near 6.0 bb (163.0 million metric tons), if weather cooperated. Weather didn't cooperate early in the new season, however, as crops suffered stretches of hot and dry weather in central Brazil that helped push March U.S. soybean prices near $14 by mid-November.

For soybean bulls, the mid-November peak was as high as prices would get, as a broad coverage of consistent rains returned to central Brazil after Thanksgiving and then again over the New Year weekend and into early January. USDA and Brazil's crop agency, Conab, lowered soybean production estimates for Brazil to 157.0 million metric tons (mmt) and 155.3 mmt, respectively, while other private estimates ranged lower, near 150.0 mmt, or 5.51 bb.

While social media was having a debate about just how bad crop conditions were, the price of March soybeans fell to a new six-month low on the first day of 2024 and slid lower from there, falling below $12.00 by early February. Commodity Futures Trading Commission (CFTC) data showed the speculative positions of large traders went from being net long 86,677 contracts in mid-November to being net-short 160,817 contracts by Feb. 6, the largest net-short position on record.

The more concerning price drop, however, took place in Brazil. FOB (free on board) soybean prices for March at the port of Paranagua fell from the U.S. equivalent of $12.95 a bushel near Christmas to $11.20 in early February, a time when roughly 23% of Brazil's soybean crop was harvested. No one can confidently say yet how big Brazil's harvest will be, but the sharp price drop in January speaks volumes about local expectations.

Adding salt to soybeans' bearish wounds, Argentina's crops are off to a good start in 2023-24. USDA's 50.0 mmt (1.84 bb) soybean production estimate for Argentina is twice the size of last year's drought-afflicted crop. In mid-December, spot soybean meal prices on China's Dalian exchange broke below its lowest prices in three years and fell another 10% in January, likely related to a government directive, urging hog producers to cut back inventory.

The year is still young, and there are plenty of unknowns ahead, including how U.S. production will go this year. For now, we can't ignore the fact the outlook for soybean prices has seen a dramatic bearish change the past four months.

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