Soybean Prices are Crushing it this Week, Here’s What’s Causing Prices to Soar to New Contract Highs

Soybean prices are racing higher so far this week. Continuing on its price run that started late last week, March soybeans traded more than 30 cents higher Wednesday morning, with prices above $15.50. And that’s a comeback, considering prices popped in the overnight trading hours, before falling back. And then regaining strength again.  

“It feels like the speculators have the upper hand,” says Pete Meyer of S&P Global Platts. “Overnight Wednesday we saw a 20-cent spike, a total retracement of that move within minutes, and a subsequent push back to the highs.  These sorts of moves define the term ‘emotional market.’ The fear of missing out (FOMO) is becoming more obvious.”

Is this a Weather Rally? 

So, what fundamental factors are driving the rally to start February? It isn’t the time of year you typically hear of a ‘harvest rally,' but that’s exactly what may be taking place, just from issues farther south.

“Analysts continue to slash their estimates for Brazil’s soybean crop,” says Joe Vaclavik of Standard Grain. “Generally speaking, traders believe that more export demand will come to the United States.”

SH rallied > 20 cents in 1 minute at 5:33 — Brian (@BJSplitt) February 2, 2022

It seems Brazil may be getting most of the credit for the rally this week, points out weather forecasts, and crop projections haven’t shifted that much in just a matter of days.

“There’s certainly a lot of head scratching going on this week, if you exclude the soybean perma-bulls who are enjoying a victory lap,” says Meyer. “Technically, soybeans look great, so the assumption is that money flow is playing a big part in this week’s rally, which is also a counter-seasonal rally as it occurs during Brazilian harvest.  Independent analysts have been cutting their Brazilian production estimates for quite some time, so recent estimates as low as 125M MT should not have been considered new news. In our opinion, the crop still has the potential of producing a number in the low 130s.”

Outside Money Flowing In 

As Meyer points out, it’s not just weather fueling prices. Outside money is also flowing in. As funds find interest in commodities like soybeans, that’s yet another factor helping support prices as well.

“Large money managers love a market with a ‘story,’ and I believe that outside money is interested in commodities,” adds Vaclavik. “They’ve found a story in soybeans and the issues in Brazil.”

If this is a true “weather rally,” with the weather issues being in Brazil and not the U.S., can prices hold? Both analysts say if this is a supply rally, it could turn into a shift in demand, but those aren’t the only factors playing into the market right now

“Supply rallies are meant to be sold, so if the weather has been the main trigger the move may be fleeting. That said, it’s difficult to call a top in emotional markets. Inflation fears are a strong motivating force for speculation in all commodities,” says Meyer.

Vaclavik says another thing to watch is whether export demand shifts to the U.S.

“It really just depends on how much export demand is lost in Brazil, and how much of it comes to the U.S.,” he says.

Buckle Up… the Acreage is Just Getting Started

As soybean prices continue to soar, the situation could be buying acres. That’s as early private acreage estimates continue to shift. And it’s not just prices and weather in control.

“The acreage situation is a massive wildcard,” says Vaclavik. Both crops need  the acres. We know that the fertilizer situation in regard to corn is very important. This will be the most interesting ‘acreage battle’ I’ve seen.”

“U.S. farmers face a plethora of challenges. Up until now, corn prices suggested it was a no-brainer to plant corn but should the rally stay intact for the month of February, the soybean crop insurance price will be a record. U.S. producers may shun high-priced corn inputs in favor of soybeans where they can. This may represent a problem further down the line as Chinese demand has been relatively flat the past couple of years, and demand for renewable diesel is still a year away. That demand for soy oil may not be so strong at inflated veg oil prices, another concern, as it is elastic,” says Meyer.

Platts Analytics initially set the acreage estimate for the 2022 planting season  late last year. The estimate came in at 90 million acres for corn and 90 million acres for soybeans. Meyer says that estimate has only shifted slightly this year.

“We made one change last month to 91 million corn and 89 million for soybeans. After last year, when we believed the available acre pool was 183M acres combines, we have reduced that number to 182M acres, but see no reason currently for expectations below the 180M given price,” says Meyer.

Bottom line? The acreage battle is far from over. And while history says corn prices will need to stay aggressive to compete with soybeans for acres, nothing is a given this year.

“No two years are alike and 2022 is anomalous for a variety of reasons, not the least of which is the price of nitrogen and the availability of certain corn inputs once U.S. planting gets underway,” says Meyer.