Bullish potential out there

PEORIA, Ill. — A strong crush demand market, tight supplies and continued demand from China gives soybeans a bullish potential that could be tempered by a large South American crop.

“If we didn’t have Brazil’s record harvest or a big harvest from Brazil as a possibility in late January and early February, I would be much more bullish on soybeans than I can,” said Todd Hultman, DTN lead analyst.

“But because there is that possibility of Brazil coming through with another huge 5-plus billion bushel crop, I have to temper the upside potential of soybeans. I’m saying $12 per bushel to $15 on the topside.

“The reason I say $12 on the low side is basically USDA’s estimated cost of production generally speaking for the country is about $12.30 a bushel in 2024. It’s very difficult, not impossible, but it’s difficult for a market to trade below cost of production when you have supplies so tight.

“It’s the tightest ending stocks in eight years, the strong crush demand market and the active demand market we’re continuing to see from China. I think it’s going to be very tough for soybeans to trade much lower than $12 in this kind of environment.

“If you can get anything close to $15 on the top end, I think that would be a great sale for soybeans this year.”

U.S. farmers harvested 4.1 billion bushels of soybeans in 2023, and ending stocks for the current marketing year are projected at 245 million bushels. This would be the fourth year below 300 million bushels.

“Everybody looking at the supply chain in the months ahead knows that they’re dealing with a limited supply of soybeans in the U.S.,” said Hultman at the Greater Peoria Farm Show.

“Right now we’re basically the supply of soybeans as Brazil is getting closer to tapping out of their previous harvest. When Brazil starts harvesting their next crop in February, then we have maybe 5.8 billion bushels of soybeans start to become available in the market and going into the trade channels by March.

“So, our best window of opportunity for the soybean price seems to be between now and whenever we start to get more of a handle on what Brazil’s crop is going to be. Right now we have the benefit of uncertainty, so we don’t know.”

Exports

In addition to the tight supplies, there is also good price support news on the demand side, Hultman said. He noted the price chart for March soybeans on China’s Dalian Commodity Exchange.

“The amazing thing to me is that we saw prices in China pushing higher all through the summer. And keep in mind this was a summer when Brazil had a record harvest and China is buying huge quantities of soybeans from Brazil each month through the summer,” he said.

“Yet, even in spite of those big purchases, we saw the soy price in mid-November try to hit a new high, but it got slapped down pretty quickly. Sometimes that’s a sign you’re near the high end, but just the fact the Dalian chart is holding up still as well as it did after having access to Brazil’s record harvest all year long somewhat amazes me.”

Hultman is also encouraged by China’s active purchases through this past November.

“They’re demand appetite for soybeans continue to be very strong. So far, the U.S. has exported 572 million bushels of soybeans shipped, down 7% from a year ago, and just below the four-year average,” he said.

“Keep in mind this time around we’re competing with Brazil’s record harvest. A year ago we were competing on a much better basis because Brazil had drought in early 2022.

“So, to be confronting a record harvest in Brazil and only being down 7% on shipments so far really seems like encouraging news to me. I just see the soybean demand holding up very well on the international market.”

Hultman is concerned about the impact from current low water situation at the Panama Canal, the route soybean shipments take from the Gulf of Mexico to China.

Crush Demand

There continues to be bullish demand for soybean crush due to its return on investment. Based on January futures prices, the combined value of meal and oil from crushing was $16.25 per bushel on Nov. 27, with soybeans selling at $13.35 per bushel, resulting in a $2.88 per bushel spread.

By comparison, crush premiums ran around $1 to $1.50 per bushel in 2021, Hultman said.

“If things got really good they might get to $2 for a short while, but $1.50 would be a decent crush level,” he said.

“Now we’re consistently above $2, sometimes near $3, and that’s all basically because of the new renewable diesel market. We have a brand new source of demand for soybeans in the past few years that continues to grow at a rapid pace.”

According to the U.S. Department of Energy, about 1 billion pounds of soybean oil was used for biofuels from May through August.

“We’ve never performed at that level before. This market continues to grow rapidly. The demand is growing rapidly,” Hultman said.

“We continue to build and establish new renewable diesel plants. That plant capacity was up about 67% in August from a year ago, and we now have five more renewable diesel plants expected to come online in 2024. If they stay with it, another four plants are expected to come online in 2025.

“This continues to be a very strong growth market and a strong source of demand for the price of soybeans.”

There is concern with the increased crush demand how the market will handle the excess meal.

“I’ve talked to some guys in the industry and they’re concerned that maybe even as soon as next year the meal prices could really tank. That’s good news for the hog and poultry guys,” Hultman said. “Overall, it’s bullish for soybean demand.”