Todd's Take

What 2014 Can Teach Us About Soybean Prices in 2021

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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July soybeans went from a low of $11.80 on Aug. 7, 2013, to a peak of $15.36 3/4 on May 22, 2014 -- up 30% in just over nine months. July 2021 soybeans are already up 36% from their August low, but at $12.03 1/2 are nowhere near the prices of seven years ago. (DTN ProphetX chart by Todd Hultman)

As we enter the final two weeks of 2020, the one thing that remains clear is that U.S. soybean supplies will become extremely tight by the time the 2020-21 season ends on Aug. 31, 2021. Just how tight supplies get and how high soybean prices go remains to be seen, but we do have one similar season to give us clues of what lays ahead -- 2013-14.

In the current 2020-21 season, USDA estimates U.S. ending soybean supplies at 175 million bushels (mb) or 2.9% of annual use. If true, that is the lowest ending total and the lowest stock-to-use ratio since 2013-14 when soybean supplies fell to 92 mb or 2.6% of annual use.

It's helpful to remember USDA's ending stocks estimate of 92 mb didn't happen until October 2014, revealed by USDA's Sept. 30 grain stocks report, the final stocks report of the season. In the summer of 2013, USDA estimated ending soybean stocks at 295 mb and the supply picture didn't tighten until USDA's estimate fell to 150 mb in September. The estimate stood at 150 mb after the December World Agricultural Supply and Demand Estimates (WASDE) report, the same point in the season we find ourselves today.

Thursday's export sales report showed 1.978 billion bushels (bb) of U.S. soybean export commitments on the books as of Dec. 10, 2020, a strong argument for saying that USDA's export estimate of 2.200 bb is too low and ending stocks are likely closer to 100 mb than they are to 175 mb; they may even be lower than 100 mb.

I say that because March soybeans on China's Dalian exchange are still expensive, at $15.77 per bushel as of Thursday's close (Dec. 17). Also, Thursday morning's weekly report shows that, of the 1.149 bb of sales marked for China, 75% has already been shipped. China is not just waiting around to see how Brazil's crop turns out in February.

There are more interesting parallels between seven years ago and today. The U.S. soybean crop in 2013 totaled 3.357 bb, tying the largest yield on record at 44.0 bushels per acre (bpa). USDA estimated the 2020 crop at 4.170 bb with the second highest yield on record of 50.7 bpa.

At this time of year in 2013, USDA was estimating a 12% increase in exports, compared to a 31% increase expected today. Clearly, the current market is more bullish in terms of unexpected export demand, largely from China, and that story is not over yet. The 2013-14 season ended with 1.647 bb of U.S. soybean exports, a 25% increase on the year.

How about Brazil's crop in early 2014? Did that put a stop to rising soybean prices? The short answer is no, it did not.

On Dec. 17, 2013, July 2014 soybean prices closed at $13.03 1/4, roughly a dollar a bushel higher than Thursday's close of $12.03 1/2. Brazil's weather conditions were good enough to produce a record soybean crop of 86.2 mmt or 3.17 bb in early 2014, up 5% from the previous year's record soybean crop.

Even though Brazil provided plenty of new soybeans in early 2014, July 2014 U.S. soybean prices closed above their 2013 high of $13.50 3/4 on Feb. 24, 2014, and rallied all the way to the peak of $15.26 3/4 on May 22, 2014.

Was drought a concern in early 2014? Yes, it was, but we can't say that those concerns looked more threatening than what showed up Thursday in the latest U.S. Drought Monitor. Seven years ago at this time, the U.S. Drought Monitor showed D1 and D2 drought levels in Iowa, southern Minnesota, northern Missouri and central Illinois.

Thursday's Drought Monitor for Dec. 15 shows D1 and D2 drought levels from North Dakota to Kansas, in western Iowa and parts of central Illinois and northern Indiana. As DTN Senior Meteorologist Bryce Anderson noted in last week's DTN Ag Summit, the long-term forecast looks drier than normal for the Western Corn Belt in the spring and summer months of 2014. The Climate Prediction Center expects drought conditions to be firmly entrenched in the western Plains by the end of March.

In 2014, those drought concerns were still present in the first week of April, but then showed signs of retreat in May. By the end of June, drought concerns had largely disappeared from the Midwest and were confined to the southwestern U.S. Plains. The retreat of drought was largely the reason July soybean prices peaked on May 22, 2014.

The concern for soybean prices as we move into 2021 is that they simply aren't high enough yet to curb demand. The reluctance is allowing soybean supplies to be taken down to what could be the lowest levels the U.S. has ever experienced.

USDA currently expects Brazil to finish its season on Jan. 31, 2021, with 55 mb of soybeans on hand, even after having to import soybeans from its neighbors and the U.S. Seven years ago, USDA estimated Brazil's ending soybean surplus at 87 mb. If the crop seasons of the U.S. and Brazil were the same, we would say the world was effectively out of soybeans, but thanks to alternating seasons, supplies can be juggled somewhat.

USDA expects Brazil to harvest 4.89 bb of soybeans in February 2021, weather permitting, and that should keep China supplied for a while. Even so, the U.S. is in danger of needing to import soybeans this summer, even if drought conditions don't compound the problem in 2021.

You know I don't make guarantees, but given the experience and parallels of 2013-14, it seems highly likely that current soybean prices have to go much higher than USDA currently expects to shut off demand. I'm not saying prices will go to $15.36 as they did in 2014, but beans in the teens aren't unreasonable in this scenario. And once again, weather will play a crucial part.

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Todd Hultman