Soybean processors’ margins will likely get a boost as US soybean prices buck the vegetable oil market trend and drift lower on better-than-expected US soybean yields, larger old crop supplies, and sluggish import demand from China.
Soybeans are processed into soybean meal and soybean oil through a process known as crushing. When the value of a soybean’s byproducts rises relative to its inputs, profit margins for soybean processors increase. Lower soybean meal prices favor pork and chicken producers, pet food manufacturers and other food companies that use soy protein.
Gro’s US Soybean Yield Forecast Model has been pointing to higher US soybean yields since August, and it now seems likely that soybean yields will be raised again in the USDA’s October 12th WASDE report. Excellent moisture in August and September aided late season development, boosting yields and offsetting declines in the drought-stricken Western Corn Belt.
Beginning stocks for 2021/22 are due for a markup on the heels of last week’s USDA quarterly stocks report, which included an uptick in 2020 US soybean production and a slowdown in June-August demand. The USDA’s report pegged US soybean stocks at 256 million bushels on September 1.
Larger beginning stocks and higher production will boost 2021/22 US soybean supplies and likely exert downward pressure on US soybean prices at a time when export sales were already slumping.
Typically, exports to China account for nearly half of total US soybean demand, and total US soybean export commitments to China are down 36% from a year ago. China has committed to buy 12.4 million tonnes of US soybeans, 42% less than this time last year.
Against this backdrop, the November-January calendar spread has collapsed and hit new contract lows, as seen via Gro’s Futures Spread Tool.
November soybeans are currently trading at their lowest level since March, and US soybeans are the world's cheapest offer. But China’s decision to shutter several soybean processing plants in its northern and northeastern provinces until next week reduces the likelihood that it will start snapping up US soybeans. China stocked up on Brazilian soybeans this spring.
Brazil’s government agency, CONAB, is currently predicting a record-breaking production of 141.3 million tonnes for its upcoming season, a 3.9% increase from its 2021 record, driven mainly by an increase in planted area. Additionally, weather forecasts are turning more favorable for moisture in Brazil’s soybean production areas just ahead of producers’ seeding efforts. Brazil is the largest producer of soybeans worldwide.