High energy prices and a shortage of lysine are supporting prices now, but Brazil’s return could act as a deterrent
Market fundamentals suggest today’s soybean prices are overvalued and poised for a sharp decline, one analyst said.
“We keep the price very high compared to where things might be,” said Rich Nelson, chief strategist at Allendale Inc.
Nearby futures were at US $ 12.48 a bushel as of November 26.
That seems overkill, given that the US Department of Agriculture is forecasting 340 million bushels of US soybeans to take out in 2021-22, which works out to a price of around $ 11.
Allendale expects delivery to be 50 million bushels. higher than USDA forecast, while other analysts think it could be 100-150 million bushels. Following.
Nelson doesn’t want to make it known what kind of price that would amount to.
He doesn’t think the market necessarily dismisses the USDA’s carry-over forecast, but it’s too far away an event for him to focus.
Currently, the soybean market is supported by high energy prices and a shortage of lysine, which has boosted the demand for soybean meal.
Nelson believes the market could see a correction in late December if weather conditions remain favorable during the breeding phase of crop development in South America.
The main reason analysts are forecasting bloated shipments to the United States is that early-season sales to China are down.
China bought 19.7 million tonnes of US soybeans as of November 26, 32% less than the same period last year.
Nelson believes there is a little over a month left in the United States to ship to China before Brazil becomes the main supplier.
U.S. soybeans will be around $ 15 a tonne cheaper than Brazilian produce in December, but that gives Brazil a $ 17 advantage in January.
Allendale expects the United States to end up shipping 27 to 32 million tonnes to China, well below last year’s total of 35.8 million tonnes.
Demand is on the decline in China due to power outages disrupting crushing, overcrowding at Chinese ports and skyrocketing ocean freight rates.
A new report shows that China’s sow herd is actually 6.6% larger than it was around the same time last year.
“They’ve grown too big and they’re already taking steps to reduce the sow herd,” Nelson said.
He expects this to lead to a further cooling in demand between March and May 2022.
One thing that could boost the market is for China to meet its phase one commitments.
As it stands, China is at 76% of what it should be on agricultural purchases in the two-year trade pact.
It purchased $ 52.5 billion in U.S. agricultural products from January 2020 through October 2021, according to the Peterson Institute for International Economics. The target for this period is $ 68.9 billion.
If China suddenly ramps up purchasing and meets its commitments by the end of 2021, that would be a game-changer.
“It would be a huge surprise to us and it would definitely change a lot of numbers on the soybean balance sheet,” Nelson said.