Soybean meal futures rallied sharply this week amid strong US domestic demand for physical soymeal. The front-month August contract, which set a new high on Friday, traded at its widest premium over the September contract since 2014.
CBOT soybean meal futures have rallied over 15% in the past week. Soybean meal is a crucial feed ingredient for pork, poultry, and aquaculture. Soybeans are crushed to make soybean meal and soybean oil, which is used as a food product and to make biofuels.
The soymeal price rally comes as the US Midwest’s hot and dry conditions threaten to pressure the new soybean crop. Weather in August and September have the greatest bearing on US soybean yields, and the near-term forecast as the calendar flips to August is not favorable for pod set and pod fill. With the US soybean balance sheet razor thin, new crop yields will have a direct influence on soybean prices.
Track progress of the new US soybean crop using Gro’s US Soybean Monitor here. The Monitor includes displays of the Gro Soybean Yield Forecast Model, Soybean Balance Sheet, Gro Drought Index, as well as charts on crush rates and exports.
The difference between the cost of raw soybeans and the combined sales values of the derived products is known as the crush spread and represents the potential profit margin for soybean processors.
Previously, crush spreads were widening due to rising soybean oil prices. For much of 2021 and 2022, soybean oil futures found support from supply constraints in palm oil producers Indonesia and Malaysia, and prospects of new demand for manufacturing biofuels, as Gro wrote about here. But following the recent downturn in palm oil prices, which competes with soybean oil for many uses, soybean oil futures lost their luster.
Back in 2014, soybean meal futures contract spreads also widened sharply as soybean supplies tightened because of drought and demand rose. US soybean ending stocks in 2013/14 were 35% lower than the previous year, limiting availability of soybeans used for crushing. Today, soybean supplies are once again tight, with ending stocks for 2022/23 forecast at a seven-year low.