Todd's Take

Almost a year ago, I wrote "The Unsinkable Price of Soybean Meal" (see https://www.dtnpf.com/…), an explanation of how soybean meal prices had gotten so expensive and why I thought there was a good chance meal prices would continue to be expensive in 2023. The Fats and Oils report from USDA's National Agricultural Statistics Service (NASS) showed 415,593 tons of meal on hand at the end of December 2022, a plentiful amount that was up 11% from the previous year. But the 2022 corn and soybean harvests had fallen short, especially in the western Plains where cash corn prices traded as high as $7 and $8 over the winter.

In January 2023, USDA estimated only 210 million bushels (mb) of U.S. ending soybean stocks for 2022-23 and I noted cash soybean meal prices in Illinois were $14 higher than the March soybean meal contract on Feb. 2. Market clues were describing a situation where available meal supplies were less than advertised and domestic demand was strong. The situation was especially concerning for pork and poultry producers that had already seen meal prices spike to expensive levels the previous two years and were now facing the possibility of a third year of high feed costs with no good alternatives.

As the February article was being written, Argentina was starting to have concerns about dry weather, but little did we know USDA's soybean production estimate of 45.5 million metric tons (mmt) or 1.67 billion bushels (bb) for Argentina would later be cut by drought to 25.0 mmt or 919 mb. The world's largest exporter of soybean meal and bean oil was about to run short of soybeans, sending cash U.S. meal prices on a roller coaster. USDA's spot meal prices for Illinois swung from a high of $519 a short ton in February 2023 to roughly $400 in May to $479 in July, down to $363 in October and up to $493 in November.

In the U.S., the 4.27 bb soybean crop in 2022 was not enough to calm meal prices in 2023 without Argentina's help and the 4.13 bb soybean crop wouldn't be enough to calm meal prices in 2024, if not for the return of Argentina's production. The most recent Fats and Oils report from NASS showed 260,052 tons of meal on hand at the end of November 2023, down 19% from a year ago. January 2024 soybean meal prices, however, suggest there's been either a build in supplies since November or an easing of demand or possibly both.

January meal has come down from a high of $460.60 on Nov. 15 to $381.20 as of Thursday, Jan. 4, its lowest close in over two months. Over the same time, a $14.00 premium in the price of March soybean meal over July has gone to a $2.00 discount. The only bullish market clue remaining is a stubborn $15 premium in the Illinois cash meal price over the January futures price.

Argentina's soybean harvest typically takes place in April and May, so there is still time for the possibility of another rally in cash meal prices before then. December 2024 soybean meal prices, however, fell to a two-month low of $371.50 Thursday and won't be so easy to rally, unless Argentina's crops get hit with a shot of adverse weather, not currently anticipated.

Fundamentally speaking, the more likely path is that Argentina will stay on track for larger soybean production in 2024, currently estimated by USDA at 48.0 mmt or 1.76 bb and may even end a little higher. Meal prices could still be jumpy before Argentina's harvest, but will likely calm as a larger harvest becomes more likely. Argentina's new president raised the export tax by 2 percentage points on soybean meal and oil, but Argentine crushers will likely be eager to reclaim lost market share after watching U.S. export sales and shipments of meal increase 15% in early 2023-24 from a year ago.

As usual, I have no guarantees, but barring a weather surprise, and expecting U.S. soybean crushers to remain active in 2024, pork and poultry producers should finally see relief from high meal costs in the second half of 2024. After three years of waiting, the pundits will then be able to come out and remind us that "high prices cure high prices."

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on X, formerly Twitter, @ToddHultman1

**

Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com .

Follow him on X, formerly Twitter, @ToddHultman1

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