Commodity Insight: A negative outlook for soybean prices

This was quite the week with major agricultural and financial reports due for release and the midterm elections also being held.

From Monday until Friday, there was plenty to keep one busy, excited or frustrated. It was one of those weeks that held everyone’s attention, whether you liked it or not.

On Nov. 7, the U.S. Department of Agriculture’s long-term agriculture projections, oftentimes called “baseline” projections, were announced.

The projections offer a peek at the U.S. and global farm sector for the next 10 years. The USDA attempts to identify future price trends and major forces affecting future agriculture markets.

Personally, my head aches each year when baseline guesses are made because such projections are far too out to mean much of anything — at least to me.

But one piece of data that caught my eye from the report was the USDA pegging cash soybean prices of $13 a bushel for 2023, the year ahead.

That compares to the high this week of $14.68 or so for front-month futures. The USDA is painting a bearish picture, a negative outlook for soybean prices moving forward.

Making the outlook more bearish for soybean prices and other grains comes from AgWeb when it posted the following: “For the upcoming crop season, CONAB, the country’s statistics agency, forecasts Brazilian production will top 312 million tons of soybeans, corn, cotton, rice and wheat. That is 15% higher than last season, when Brazilian farmers harvested an all-time high of 271.4 million tons of grains.”

In other words, in the absence of crop-related problems in South America or the United States this growing season, the odds favor lower grain prices in the years ahead.

The crops in Brazil will be bountiful, supplies will increase and sustainable rallies will be hard to come by. Of course, there may be weather issues in the United States, but the odds of such a happening are slim.

The midterm elections were held on Nov. 8 and I say with sincerity I am thankful they are over and won’t have to hear another political ad for two years.

The big takeaway from the election is clear: There was no red wave, no sweep for the Republicans. And in many cases the elections were too close to call, which means control of Congress, both the House and Senate, remains up in the air.

The day after the midterm elections were held, the Dow Jones Industrial Average fell more than 600 points, the largest decline after any election in the United States in 10 years. But it could have been worse, I do believe.

On Nov. 9, the World Agricultural Supply and Demand Estimates was released by the World Agricultural Outlook Board. The report is released monthly and provides annual forecasts for supply and usage of U.S. and world wheat, rice, coarse grains, oilseeds and cotton markets.

One data bit that more than caught my attention was the government increasing supplies of U.S. soybeans by 10% to 220 million bushel carryover.

Most pegged ending stocks at 200 million bushels. Such a rise in ending stocks from a percentage standpoint is bearish by any measure.

Also found in the WASDE report was the USDA trimming its monthly projection for 2023 beef production. The estimate was lowered “due to tight supplies of cattle and lower cow slaughter.”

One of the few commodity markets I favor on the long side of the ledger going into the new year and beyond is cattle. The WASDE report suggests strongly that I should stay the course and remain bullish cattle.

On Nov. 10, the Consumer Price Index inflation report was announced. The data showed U.S. inflation eased to 7.7% annual rate last month from 8.2% in September. The slowdown with inflation sent the Dow Jones Industrial Average up nearly 1,200 points to the best one-day gain since 2020.

But here’s the rub with the CPI report: The same data sent the U.S. dollar to the worst two days since 2014 and to a new three-month low. The decline in the value of the dollar was one of the big stories this week.

The months leading up to November showed the dollar at a 20-year high, keeping inflation in check. The dollar was in the penthouse, so to speak, and doing an exceptionally good job of keeping U.S. inflationary pressures subdued.

And that was reflected perfectly in the CPI report. Inflation eased while the dollar was strong.

However, the CPI report sent the dollar tumbling badly. In very short order the dollar has gone from the penthouse to the outhouse.

History shows when the dollar is depressed and in the outhouse, so to speak, inflationary pressures tend to rise.

I expect inflation to linger longer than most expect. Maybe for another 10 years.