Soybean prices reached the highest level since 2012 during 2021 on the continuation of a steep surge started in mid-2020.
During the second half of the year, soybean prices pulled back somewhat but still ended the calendar year at a relatively high level.
Looking into 2022, downward pressures might take the upper hand, although upward risks exist.
As the year draws to a close, Fastmarkets Agricensus explains what forces have driven the market over the past year and what can be expected for 2022.
Prices remained on a steep upward trend during the first half of 2021 supported by successive downgrades of US ending stocks as per the USDA’s Wasde reports.
This was underpinned both by reductions of US production estimates since the end of 2020 and by higher exports, partially driven by a late harvest in Brazil that widened the US export window.
Since the second quarter of 2020, soybean prices have also been underpinned by the monetary policies championed by the US Federal Reserve and other central banks around the world to counter the economic shock linked to the outbreak of the Covid-19 pandemic.
The excess liquidity flowed into higher risk assets – including commodities – as investors sought higher yields.
Commodity prices were further fuelled in 2021 by the influx of financial flows linked to rising inflation across the globe as commodities are typically seen as inflation hedges.
From June 2021, soybean prices pulled back from their multi-year highs following forecasts that showed an increase in supplies and ending stocks for 2021-2022 and upgrades to 2020-2021 ending stocks.
On the demand side, lacklustre Chinese interest, amid long-lasting negative crush margins and low hog prices in the domestic market, combined to further shave off some support from beans.
Chinese spot crush margins turned negative in March and remained in red territory until October, pulling the country’s soybean purchasing pace lower during this period.
By December, front-month future contracts at CBOT were trading between $12.30 and $12.92 c/bu, some 25% below peaks reached in May but still around 42% higher than average prices between mid-2018 and mid-2020.
Soybean prices in 2022 may face downward pressures linked to multiple factors, although risks to the upside also exist.
The US is expected to produce 120.4 million mt of beans in 2021-2022 according to the USDA’s latest estimates.
If confirmed, this will represent a near 5% year-on-year increase and will place the current marketing year output as the largest since 2018-2019.
At the same time, South America is expected to deliver the largest crop in history with Brazil forecast to harvest around 144 million ronnes of beans and Argentina lifting yet another 49.5 million tonnes from fields, according to USDA estimates.
However, outlooks for South American estimates might be over optimistic as recent figures released by the Buenos Aires Grains Exchange (BAGE) pegged Argentina’s 2021-2022 soybean production at 44.0 million tonnes – with a lurking La Nina potentially pegging back yields.
That said, unless there is a significant crop loss that is not yet factored into the latest forecasts, global soybean production is still set to breach the all-time high reached in 2020-2021 by some 20 million tonnes.
From the demand side, 2021-2022 is also expected to be a record-high year as domestic consumption in the US, Brazil and Argentina is forecast to increase by some five million tonnes on improved crush demand fuelled by the biodiesel industry.
Chinese demand is also expected to increase by five million tonnes on a stable hog herd.
Overall, 2021-2022 supply is still expected to exceed global demand, lifting ending stocks albeit only modestly in a dynamic that may underpin a slightly bearish trend throughout the year.
On the other hand, the stocks over consumption ratio will remain tight and may even decline mildly due to increased global consumption.
This is expected to cap downward pressures linked to supply/demand fundamentals.
At the same time, export dynamics may play a big role during the current marketing year.
Brazil sowed beans early this year and the country’s harvest is expected to hit the market much sooner than it did in 2020-2021.
The early arrival of Brazilian beans at more competitive prices will narrow the US’s export window.
Brazil’s North American rival has already been shipping at a sluggish pace since the beginning of the marketing year due to logistical disruptions, especially those linked to Hurricane Ida which plowed through New Orleans at the end of August.
The US had exported 25.4 million tonnes of beans in the 2021-2022 marketing year as of December 9, which represented 46% of USDA’s export forecast, seven percentage points below the level reached the same point in the previous year.
This outlook may cap US export potential during 2021-2022 with larger bean volumes ending up in stocks, which would pressure domestic prices and the benchmark CBOT future contracts.
The US Fed also announced on December 15 a more aggressive approach to normalizing the country’s monetary policy with an increase in the pace of asset buying tapering and more interest rate rises foreseen in 2022, 2023 and 2024.
This may add some bearish tone to soybeans and overall commodity markets as funds shift back to more traditional assets backed by recovering yields.
If inflation at advanced economies is tamed, commodities may face further headwinds as investors move away from these markets on reduced inflation hedge strategies.
At this point, the largest upward risk to soybean prices lays in an unexpected crop loss that could dampen global supplies.
The world’s supply and demand balance will remain tight in 2021-2022 as shown by the tight stocks to consumption ratio and any reduction in expected output can trigger price spikes.
Delays in Brazil’s harvest works linked to above-normal rains in January – as currently shown in weather forecasts – may also underpin an upswing in prices as it would widen the US’s export window.
Increased demand can also tighten the market.
Hence, developments in the biodiesel industry will remain in the spotlight as will any significant shifts in Chinese demand and purchasing behaviour.
This article was originally published to Fastmarkets Agricensus on Monday December 27, 2021.
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