MARKET DEVELOPMENT
US soybean market indirectly impacted by war
US soybean market indirectly impacted by war
04.04.2022 (www.agupdate.com) - While the war in Ukraine has had a direct impact on some commodity markets like corn and wheat, its impact is more indirect when it comes to soybeans. But there is an impact nonetheless.
“Ukraine and southern Russia do produce some soybeans, but they don’t have large export volumes,” said Frayne Olson, grain marketing economist at North Dakota State University. “Their acreage of corn and soybeans has been growing over the last several years, but they’re not huge players in the soybean market. So the war in Ukraine has more of an indirect impact on soybeans than a direct one.”
Even though they are increasing production and acreage some, they still aren’t big players in the soybean market. Just because a country produces a lot doesn’t mean they have a big role to play in the global markets.
For example, China, as a single country, is the largest wheat producer on the globe, but they don’t play a big role in the international market because they import very little wheat and they don’t export any.
“So there are large volumes produced, they’re just not a big player in the global wheat markets,” he explained, adding that it’s the same thing for Russia and Ukraine in regard to soybeans. They are, however, big players in the global vegetable oil market.
The number one vegetable oil traded, by far, is palm oil. A distant second is soybean oil, and third, by volume, is sunflower oil. Ukraine is the number one exporter of sunflower oil and Russia is the number two sunflower oil exporter.
“I tend to focus on the volume of trading and not necessarily the volume of production. So when Ukraine’s vegetable oil exports, in particular, and also Russia’s, start to drop off, that does have an obvious impact in the global oilseed trade,” he said.
“So the war is having a backward impact on soybean oil here in the U.S., which obviously has an impact on soybeans because of the crush demand,” he added.
The other indirect effect, he explained, is as corn prices go higher, usually soybean prices have to try and keep pace. And certainly there’s been an increase in corn prices because of what’s happening in Ukraine, so the war does have an impact on soybean prices, it’s just more of a ripple or indirect effect.
The war is not directly affecting the size of the Brazilian soybean crop, but it does have an indirect effect on the soybean market. Brazil’s soybean crop is smaller than expected, but it’s still a good crop and Brazil still has a lot of soybeans to sell, just not as many as were expected.
“On the supply side, we don’t have the volumes we thought. It’s tighter than we thought going into the season, but it’s the reason soybean prices are higher,” he said.
The other issue with Brazil is that in northern Brazil, the Mato Grosso region, they had a very good crop and yields there were actually very good. However, the southern part of the growing region in Brazil had problems and also the northern region had rain during harvest. As a result, there is some concern about quality.
“There are more reports coming out now of quality issues with some of the soybeans that have been exported from Brazil,” Olson said. “It’s because of those rain showers and swollen beans that have caused some mold issues, as well. From a quality perspective, some of the beans are lower quality than we had anticipated.”
One of the surprising things for the U.S. market is that China, as well as some other countries, has been buying old crop soybeans as well as some new crop soybeans. There have been announcements as well about sales into unknown destinations, which is typically China, but also into Mexico, he added.
“Normally, at this time of year, we don’t make a lot of new sales. This is typically a very quiet time in the soybean export market because Brazil is usually selling the brains out of their crop, but their crop wasn’t as big,” he said. “So that is also helping support soybean prices – the fact that we’re selling both old crop and new crop out of the U.S., which, this time of year, typically does not happen.”
Although the war has had some kind of impact on commodity markets, it’s not the only thing. There are still traditional factors for the soybean market to consider, such as the number of acres that will get planted, the weather, etc.
“We are expecting a continued recovery in soybean plantings. Just how much of a switch are we going to get out of corn and into soybeans? By the time we get the acres figured out, then it will be about what the growing season is like, what the yield potential is going to be. This is very traditional stuff,” he said.
“All of the things that we normally talk about, supply and demand, trade and flows, pricing, all of those things are still there. Everything that we normally talk about this time of year is still going on. It’s just the big shock value. The thing that we haven’t quite figured out is this impact of the war.
“And so now we’ve layered these traditional things that we normally talk about and stirred everything up because of this Russia/Ukraine war and trying to figure out what that means,” he continued. “The point is these traditional things haven’t gone away, it’s just that we’ve added this whole new layer of complexity and chaos because of this war.
“On the soybean side, we’re starting to work through and make adjustments. We’re trying to figure out how to adjust and compensate for this new environment we’re in. It’s just that it’s taking a while to figure out what makes sense and what will work.”
Looking at prices, old crop beans in the bin are around $15.75. New crop soybeans to contract are about $14.15-$14.20. At one local elevator in west central Minnesota regularly followed in this column, as of March 29, the April cash price for old crop soybeans was $15.78 per bushel and basis was -45 cents under. The June 2022 futures price was listed at $16.24 and basis was -23 cents under.
“This is still very good. Just like corn, we’re going to see these big swings,” he said, adding that the previous week the market took out about 50 cents a bushel in corn, about 60-70 cents a bushel out of soybeans, and about $1 for wheat. On the other hand, prices can go up again the next day.
“Unfortunately, that’s the world we’re living in right now. And it’s not that we need to get used to it, but realize this is what we’re going to be dealing with – these wild swings,” he said.
“I know it’s hard to leave money on the table, and I know what that means when you multiply things out by the bushels you produce on your farm, but it’s still some really good prices. So keep it in perspective.”