Soybean futures outperformed in 2016, rising for the first time in four years, by 14.4%, compared with a 1.9% decline in Chicago corn futures, and a 13.2% drop in wheat.
While the US harvested a record crop, demand has been strong too – supported by Chinese imports which also set a record high, with demand supported by a recovery in the fortunes of the country’s important hog producers.
Meanwhile, values of soybean oil have been supported by disappointing global output of rival palm oil, with the latest El Niño casting a long shadow over South East Asian production.
But will such factors continue to support soybean futures in 2017? Or will the US produce another record harvest to dampen price prospects?
Expert commentators give their views.
In 2016-17, global soybean production will probably be more than 330m tonnes – a new record.
On the demand side, the focus is still on China’s import demand. The USDA and the International Grains Council expect it to grow from 83.5m tonnes in 2015-16 to 86m-87m tons respectively in 2016-17.
The US will profit from this in the form of high exports, though competition from South America will hit the world market early in 2017.
At present, a further expansion of soybean acreage in the US is also anticipated in 2017-18 – starting out from a record level. If this turns out to be the case, another increase in production would also be conceivable, assuming weather conditions are favourable.
Combined with the record-high South American crop, there is therefore likely to be ample supply available internationally to ensure that there is no shortage of soybeans in 2017 either.
We expect to see a soybean price of $9.00 per bushel in the October-to-December quarter of 2017.
Despite concerns late last spring that La Niña weather conditions would weigh on growing conditions, the US 2016-17 harvest ended up record large for both corn and soybeans.
Further, with only weak La Niña weather conditions currently, the beginning of the South American growing season is so far taking place under favorable conditions.
As a result, we expect that under normal weather conditions going forward corn and soybeans prices will decline back to their marginal costs of production over the coming year to limit further inventory builds, with our 12-month forecast for both crops below the forward curve.
Continued strong soybean demand from China leaves us, however, forecasting that soybean prices will continue to trade at a historically-elevated premium over corn prices to continue to incentivise acreage allocation.
We expect a recovery in 2017 commodity prices as global consumption rises and corn and soybean supplies begin to decline.
With continued low commodity prices, U.S. planted acreage should pull back in 2017 leading to lower excess supplies of major crops.
We believe US farmers could cut 3.7%, or 3.5m acres, of corn in 2017 while soybean acres are likely to remain flat. With cotton likely to gain 1.0m acres, total principal acreage would decline by a small but noticeable 2.5m acres assuming no significant changes in other crops.
An acreage pullback is unlikely to be an isolated US event. Other major crop producing countries, mainly the EU and Brazil, are also likely to pull back on planted acres.
After four successive years of supply increases, next year could prove to be the turning point with a global supply pullback leading to improved pricing.
Soybean prices are forecast to rise in 2017, as global demand expands by a forecast 2%, underpinning markets.
A tightening in the balance sheet is expected to bring increased volatility to soybean prices through 2017, relative to 2016, with a greater potential of increased price risk to be driven by any production shortfalls and adverse weather in the major exporting countries.
Global wheat and corn prices are expected to remain near historical lows amid heavy inventories. While on the one side, this has weight on soybean prices, it also puts in somewhat of a floor, as only limited additional price pressure from grains on soybeans can be expected.
Chinese import demand for the 2017-18 season will again be a major determining factor for global soybean prices. Continuing growth of the Chinese hog herd in 2017-18, and therefore a growing feed demand, will face a forecast expansion in soybean planted area of 5-10%, which results from a cut in corn area due to less supportive subsidies.
Chinese soybean imports are forecast to increase 5.2% year on year in 2016-17, to 87m tonnes, reaching 89m-91m tonnes in 2017-18.
The US soybean total export commitments for 2016-17 resemble the pace seen in 2014-15, which slowed after the start of shipments from Latin America.
Based on our analysis, LatAm farmers reduced soybean sales during 2014-15 also, from August 2014 onwards, amid expectations of a weaker real.
The US exported 1.84bn bushels of soybeans in 2014-15 despite a similar start to the season. However, we expect it to export 2.05bn bushels in 2016-17, in line with the USDA’s forecast, due to record Chinese imports.
If weather proves to be severe for LatAm crops, we think there would be potential for further growth in US exports this marketing year. However, we expect weather to remain favourable for LatAm crops.
As a result of recent Brazilian real depreciation, farmers there have become more active on the market, and we expect their forward sales to increase. More active selling by farmers should leave little scope for further growth in US soybean exports.
Persistent Chinese demand looks set to support the market going into 2017.
The USDA forecasts that Chinese consumption will be around 100m tonnes as imports increase to 86m tonnes as well as growth in domestic production growing also to 14.1m tonnes, up from an estimated 12.5m.
These figures seem to be at the top end of the spectrum. However, the Asian economy’s GDP per capita is still growing at faster rate than its population. The uncertainties of Chinese imports lie with the domestic harvest as well as the price and timing the government auctions off reserve stocks.
Incentives for production in China to rise further are likely to be affected by the government’s decision on stocks. These ending soybean stocks according to USDA data stands at 14.46m tonnes which are considerably higher stocks above the 10-year average of 10.73m tonnes.
Despite our reaffirmation that Chinese demand for soybeans will remain high, there are certainly factors that could impact prices, prompting a retreat to the downside. The strong dollar is likely to add downward pressure along with any indication of an increase in acreage from US farmers.
University of Illinois
Planted acreage of soybeans is expected to increase, perhaps by as much as 4m acres, in 2017 due to the low prices of corn and wheat and the lower cost of producing soybeans relative to corn.
The very high soybean yields of the past three years make it more difficult to anticipate yields for 2017. A yield near 48 bushels per acre would result in a 2017 crop about 200m bushels smaller than the 2016 crop, but would still point to a further increase in US stocks by the end of the 2017-18 marketing year.
Prices are expected to average near $9.20 a bushel during the current year and near $8.75 a bushel during the 2017-18 marketing year if world production unfolds as expected.
Expanding biodiesel production, however, has the potential to support prices at a higher level.
Source: by Mike Verdin, Agrimoney.com