Inside the Market

I have often remarked that the sudden change in grain prices in the fall of 2020 was the sharpest and most unexpected transition from bearish to bullish in my short 35-year career in commodity markets. It may have been the most dramatic change we'll ever see, but you can never say never. Minus $40 crude oil stands as a stark reminder that highly improbable events do happen.

In the past six months, the soybean market has gone through two more sharp about-faces, not as dramatic as what we saw in 2020 but confusing enough for those trying to keep score. In September 2021, U.S. soybean supplies were unusually tight. China had aggressively bought as much as it could from Brazil during the summer, and China's soybean prices were still making new highs. It looked like a prelude to a bullish fall for U.S. soybean exports.

Then, the market changed. USDA found a higher-than-expected 256 million bushels (mb) of soybeans in the Sept. 30 "Grain Stocks" report. China's soybean and meal prices turned lower in October with news that crush plants were being closed to save electricity.

Despite drought in the northwestern Midwest, the 2021 U.S. soybean crop turned out to be a record 4.435 billion bushels (bb), and U.S. soybean export sales suffered late in 2021 after China noticed the favorable start for Brazil's new soybean crop. March soybean prices were feeling the bearish heat and briefly fell below $12 a bushel on Nov. 9.

There was no flashing neon sign pointing to that date as the seasonal low, but that is how things turned out. In December, we started hearing the first concerns of dry weather in southern Brazil, mostly in Rio Grande do Sul. By early January, those concerns had expanded into much of southern Brazil and Argentina, a second year of La Nina influence.

Soybean meal found new buying interest in the fall, related to a shortage of synthetic lysine, and received more support later from falling crop estimates in Argentina.

Soybean oil prices turned up in January as more soybean oil was being used to make biofuel. The threat of Russian troops on Ukraine's border provided an extra boost, not only sending crude oil prices higher but also lifting vegetable oil prices. Ukraine is the world's leading exporter of sunflower seed oil.

At the time of this writing, the forecast remains dry for southern Brazil and Argentina, and March soybeans are a whisker away from $16 a bushel, a price the March contract has not seen since 2012. Given the excitement of the potential for drought damage and uncertainty of Russian troops at Ukraine's door, soybean prices could be even higher by the time you read this.

For U.S. producers looking ahead to these crops in 2022, it is difficult to say what fall prices will look like. However, witnessing this year's lower production in South America and the rising use of soybean oil for biofuel, this looks like one year when producers should be in no hurry to price new-crop production.

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-- Read Todd's blog at about.dtnpf.com/markets

-- You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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