A new year has opened for soybeans with prices lower than those of previous years. The Southern Hemisphere, led by Brazil and Argentina, will be at the center of what may happen with soybean prices. The planting season has begun with less optimistic data compared to previous years, but there is still a long way to go. What could the possible scenario be?
By mid-September, the Southern Hemisphere starts up its tractors to begin planting the flagship crop: soybeans. According to USDA data, the combined production of Brazil, Argentina, Paraguay, Bolivia, and Uruguay will total nearly 240 million tons, representing more than 55% of the total expected production, which is estimated at 430 million tons. This marks the first difference from last year, and helps explain part of the decline we have seen in prices: a 35-million-ton increase in production. We are far from the soybean prices of 2022, and it seems we are facing some volatility, within a price range more similar to 2017-2018.
The question on everyone’s mind is: will this be the price floor for soybeans? It’s difficult to say, but it seems that the general bearish data has already been priced in. As mentioned earlier, the production projections, along with financial factors, have caused speculative funds to reach record levels of short positions. On top of that, China had been quiet in its purchases. As these cycles go, what we are seeing now is the opposite.
Financial Factors
The decrease in interest rates announced by the FED has affected the market, causing funds to scale back their short positions. This has led to some fictitious buying, which still impacts the market, causing price volatility. We are also seeing a reactivation of purchases from China. The key factor, however, is the weather, which has resulted in low rainfall, especially in Brazil.
Two key variables remain uncertain in Brazil: the area planted and the yield. According to Conab, soybean planting is expected to reach 47.4 million hectares, almost 1.5 million hectares more than the previous year, with a yield 10% higher than last year, increasing from 147 to 166 million tons. This country represents a significant portion of global production.
Finally, Argentina’s supply is expected to increase to 51 million tons, influenced by improved yields and an expanded planting area due to the impact of the leafhopper on corn, which left more area available for soybeans.
As detailed, much of the future soybean supply is in the hands of the Southern Hemisphere, and the climate, in the first instance, will determine the price floor. However, global demand for grains and oils will also play a significant role.
Since both supply and demand are not linear, we must closely monitor the behavior of producers’ sales, not just in Argentina, but worldwide. While we can estimate the supply, we must also understand the actual availability of this supply. Argentina has demonstrated this well, but it’s the same in other producing countries.
Argentina
From the Argentine producer’s side, it’s clear that at current prices—both available and futures—they are hesitant to make selling decisions. In a scenario of low prices, lower inflation, and expectations of macroeconomic stabilization, they prefer to hold on to the grain, which has contributed to the prices being paid here compared to competitors.
This is simply a chapter in a book that we still have to write. It will be a long year for the entire agribusiness chain, and especially for producers.
