Putting price volatility into perspective

CHESTERFIELD, Mo. — To gain a better perspective in the current November and December futures price volatility, a soybean trade specialist noted historic parallels in the past 20 years, buyer opportunities and demand potentials.

Carlos Salinas, U.S. Soybean Export Council Americas regional director, provided an analysis of the current marketing climate in an USSEC video update.

As of mid-July, December wheat was down 21% over the past 12 months; December soybean oil, down 20%; December corn, down 19%.; November soybeans, down 18%; and December soybean meal, down 16% over 12 months.

“I don’t know what will happen in the next 30 to 60 days, but what I can share is what has happened in the past 20 years in the window between July 23 and Aug. 23 for soybeans and soybean meal,” Salinas said.

“From a seasonality perspective over 20 years, July 23 to Aug. 23 soybean prices have gone up 50% of the time and they’ve gone down 50% of the time.

“However, what’s important to keep in mind is some of the ranges that we have seen in history are bit different. We’ve seen that on the upside in 2003 during this 30-day window when soybean prices went up as much as 50%, and they’ve gone down as much as 9%,” in 2015.

“It’s important to look at this information in context because you have to keep in mind what’s happened since the beginning of the year. This is where we have a potential buying opportunity,” he said.

“Maybe not for 100% of your needs for the year, but covering a couple of months, three months, it’s very important to take advantage of these prices because year-to-date soybean prices have experienced the largest percentage drop in the past 20 years.”

Price Coverage

“It may be wise to seek some or partial coverage for your hog or poultry operations and seek some equilibrium,” Salinas said.

“You may also want to contact some of our experts within our membership that provide risk management services and tools because a good opportunity to seek coverage through options or buy some insurance could also be a good way to take advantage of this low price environment.

“When we look at the same analysis for soybean meal between July 23 and Aug. 23, we see that the seasonality is pretty boring — December prices up 45% and down 55% of the time over 20 years.

“One takeaway for soybean meal specifically is the ranges have been quite significant. Meal was up 18% in 2003 and down 11% in 2017.

“I would qualify it again as a significant buying opportunity because year-to-date soybean prices have experienced the largest percentage drop in the past 20 years. A big takeaway is taking some coverage — at least 20%, 30% coverage the next 12 months — I think would be a wise choice.”

Income Outlook

Recent agricultural production data from the Kansas City Federal Reserve and the University of Illinois indicate profitability challenges.

The U of I farmdoc report noted the per-acre returns in 50-50 corn-soybean rotation in central Illinois is $276 per acre for 2024 and the cash rents are higher than that.

“That tells you if you’re an operator in that state today, you’re not making money. It’s quite challenging for sure. Yes, it’s possible land rents can go down; it’s possible, but we already know overall that the sector is struggling,” Salinas said.

“By buying 20% or 30% of your needs at these levels, you’re buying something that’s going below the cost of production simply because we probably have a higher stocks-to-use ratio.”

Oilseed Global Market

World Oil, an independent global market analyst and forecaster, projected world soybean stocks-to-use ratio is near 30%, up from 26% last year.

“We do have more production in North America, but the Southern Hemisphere has the biggest uptick. We’re going from 217 million metric tons to a projected 236 million metric tons,” Salinas said.

“Many things can change, but one takeaway from this report is global crush is increasing to 340 million metric tons from 327 million. So, we see that the demand for meal and oil is going to go up. Other uses for soybeans are also increasing.

“However, when you look at the production history over the last four years, the standard deviation for production in the Southern Hemisphere is 13.04 million metric tons.

“Production values typically vary by about 13.04 million metric tons from the average production over the last four years. If you take that standard deviation on the downside, we’d be very close to reducing that 30% stocks-to-use down to close to 26%.

“The U.S. soybean crop hasn’t yet been made. It’s very difficult to forecast the South American crop. We know that weather has been very volatile all over the world. We had that significant drought in Argentina in 2022-2023.

“Many things can happen and we have to keep that in context when we talk about what could happen in the next 30 days. From an overall macro perspective, the demand numbers are not bad.”

According to World Oil, soybean meal demand is going to grow from 256 million metric tons to nearly 267 million.

“I think that’s pretty solid. The U.S. exports close to 13.8 million metric tons, while we’re growing global demand by 11 million metric tons from 2023-2024 to 2024-2025,” Salinas said. “We’re also seeing growth in oils and fats with the projections we have for palm oil and soybean oil.

“The overall demand side picture is healthy. We have to look at what the production is going to look like and certainly weather will always play an important role.”

Brazil Export Pace

Over the past 60 days, weekly Brazil soybean exports reached a high in early June, but have since declined. Brazil soybean exports in mid-July were below the five-year average for the week.

“We have to closely monitor that evolution because that will tell us a lot about what happens when business begins to shift to the U.S. for soybeans,” Salinas said.

Based on some of the information on prices, particularly for the September window, in Sao Paulo, Brazil, on June 14 basis for the month of September was 50 over. There were no sellers.

“In the July 16 report, those bids are 110 over and offers are 140 over the November. Whichever way you look at it, those numbers are significantly firmer,” Salinas said.

“There are many reasons for that. I think that July, November soybean spread in the CME had a lot to do with it, but certainly as a result soybean basis in Brazil for those September, November windows are certainly firmer.

“Soybean meal is a perfect example. On June 14 that on demand window was bid at 9/10 over and offered at 14. Those bids are now 18 over and offered at 22 over for the on-demand window.

“So, it’s significantly stronger and I believe we’ll continue to see this rationing out of Brazil and slowly and gradually migrating demand out of the U.S. It won’t happen immediately, but certainly it looks like it’s going to be shifting to the direction of the U.S.”

Looking at another broker, Ag Commodities, Brazil’s cost and freight basis is similar to the U.S. Gulf of Mexico’s and the Pacific Northwest.

“So, we are very close to participating in some of these new crop numbers,” Salinas said.

Mexico Logistics

USSEC has heard reports from customers regarding logistical challenges with railroads, as well as internal logistics, within Mexico.

Salinas noted the monthly exports for soybeans, soybean meal, soybean oil, corn, wheat, rice and sorghum combined increased by 400,000 metric tons between February and March 2024 to a peak nearly 3.402 million metric tons and remained high in April and May, though not as high as March.

“I think this is probably likely the reason why we’re seeing a stress in the system, stress on the logistical capacity at the border crossings, as the industry is getting adjusted to these type of volumes. Maybe investment in infrastructure is needed if these volumes persist,” he said.

“We have a very efficient system that I think Mexico is taking advantage of the lower prices for many of the grains in the U.S. and it’s a great opportunity and we see that reflected in the flows of the exports to Mexico. Good for Mexico to take advantage of these opportunities.”