Soybean Stocks Hit Record High
The U.S. has the most soybeans in storage according to the USDA. Farmers in the U.S. are expected to plant more corn and fewer soybeans than expected. As a result, the CME Group farm markets have reacted negatively to the USDA reports on Friday. May soybean futures ended at $8.84. July soybean futures closed at $8.97. May soymeal futures closed unchanged at $306.50. May soy oil futures closed at 28.36 per pound.
It is obvious price have declined compared to last week. Again, it is surprising to see price decline because the Data from USDA indicated farmers will plant fewer soybean, therefore this information should be a positive foundamental to increase prices on CME but the vice versa happened.
The flip side the situation is, there is high stock of soybean in storage (supply) which outweigh demand thereby dragging prices down. But then, once all the surplus soybean in storage are sold, the USDA Data about fewer soybean plantation in the future will serve as a long term price driver to surge prices.
Sources:
https://www.agriculture.com/us-soybean-stocks-hit-record-high-usda-data-drops-markets
Sunday, March 31, 2019
Sunday, March 24, 2019
Week 12 - Farmers and Soybean deals
Farmers are Stalling Soybean Deals
The rains and twists and turns in a bitter trade war between the United States and China have hurt prices. The United States and China, the world’s top soybean producer and importer respectively, have slapped import tariffs on hundreds of billions of dollars worth of each other’s products in their dispute. Tariffs made U.S. soybeans too expensive so Beijing stopped buying them, resulting in a glut that has hit soybean contracts in Chicago, the reference price for the global trade.
The uncertainty over prices and the delays to deals has also rattle the global trade as major buyers look to lock in supply but farmers are stalling deals till the conflict is over. President Trump said on Wednesday that a trade deal with Beijing was coming along nicely and have also given $12 billion aid to farmer in the US. Although this may look like a positive signal, but some “Farmers are saying ‘I don’t like the price and I don’t need the money now because I was able to make cash with wheat and corn. So I’ll wait’.”
It is obvious U.S.-China trade war determining Chicago reference prices, rather than supply and demand, which means prices are flying without instruments. Benchmark Chicago Board of Trade soybean futures are hovering around $9 per bushel throughout the week. The chart below depicts the price over the week.
Figure:
U.S officials will travel to Beijing next week for another round of negotiation. Currently, investors and farmers finds themselves in a position to make big decisions in terms of next year’s planting and hedging investment positions. But the question here is; "should farmers hedge now or wait till the end of Trade negotiation?"
Sources:
https://edition.cnn.com/2019/03/20/politics/soybean-farmers-trump-trade-war/index.html
https://www.reuters.com/article/us-argentina-soybeans-tradewar/as-bumper-harvest-nears-argentinas-soy-farmers-stall-deals-waiting-for-trade-wars-end-idUSKCN1R12MD
The rains and twists and turns in a bitter trade war between the United States and China have hurt prices. The United States and China, the world’s top soybean producer and importer respectively, have slapped import tariffs on hundreds of billions of dollars worth of each other’s products in their dispute. Tariffs made U.S. soybeans too expensive so Beijing stopped buying them, resulting in a glut that has hit soybean contracts in Chicago, the reference price for the global trade.
The uncertainty over prices and the delays to deals has also rattle the global trade as major buyers look to lock in supply but farmers are stalling deals till the conflict is over. President Trump said on Wednesday that a trade deal with Beijing was coming along nicely and have also given $12 billion aid to farmer in the US. Although this may look like a positive signal, but some “Farmers are saying ‘I don’t like the price and I don’t need the money now because I was able to make cash with wheat and corn. So I’ll wait’.”
It is obvious U.S.-China trade war determining Chicago reference prices, rather than supply and demand, which means prices are flying without instruments. Benchmark Chicago Board of Trade soybean futures are hovering around $9 per bushel throughout the week. The chart below depicts the price over the week.
Figure:
U.S officials will travel to Beijing next week for another round of negotiation. Currently, investors and farmers finds themselves in a position to make big decisions in terms of next year’s planting and hedging investment positions. But the question here is; "should farmers hedge now or wait till the end of Trade negotiation?"
Sources:
https://edition.cnn.com/2019/03/20/politics/soybean-farmers-trump-trade-war/index.html
https://www.reuters.com/article/us-argentina-soybeans-tradewar/as-bumper-harvest-nears-argentinas-soy-farmers-stall-deals-waiting-for-trade-wars-end-idUSKCN1R12MD
Sunday, March 17, 2019
Week 11 - An update on the US v China trade war
Trade war update
As many of you know, and as previously mentioned in a past post, China and the US are in the middle of a trade war which has affected the demand of US soybeans dramatically. It has led to an increase in demand for soybeans from Brazil, but this could all be coming to an end. According to Reuters, and the US Trade Representative Robert Lightizer, "....negotiations are entering their final weeks on a possible accord, that could see China remove a 25 percent tariff on U.S. soy that upended global farm trade and shifted demand toward Brazil."
As this war between the countries progressed, China has had to rely on Brazil for the demand for soybeans to replace what they was importing from the U.S. In 2017/18, Brazil had a record-high production crop year that meant China did not have to rely to heavily on the United States. However, this year the output is expected to be lower and will Brazil would not be able to supply what is needed, and therefore, China will to be relying on the US again. Hence a need for the trade war (especially on soybeans) to be resolved.
Price update over the past week
In week 11, the price for soybean futures May 2019 contract opened at 898.2 cents, and closed at the end of the first day of trading at 890. With the price being at its lowest since January, the news of the US v China trade potentially coming to end caused the price of soybeans to increase throughout the week, with a slight blip on the 14th March where price decreased from the previous day. At the close of trading on Friday, the price had a 1.20% increase from its previous day and closed at 909.2.
Soybean meal followed the same sort of trend and increased throughout the week. On the close of trading on Monday, the price was at 301.3 cents, down from the close on Friday by 0.79%. From then, the price increased throughout the week and closed on 310.8, an increase of 9.5 overall. In comparison, soybean oil continued its trend of backwardation with the previous week. At close on Monday, price was at 29.64 cents, and apart from an increase on Tuesday, the price in general continued to fall and on Friday, closed at 29.43 cents.
As the season for growing soybeans is approaching, we may potentially see the 3 soybeans price begin to rise steadily. However, depending on the weather this year, growth could exceed last year or decrease which could pose for an interesting year.
Sources
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_quotes_globex.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
https://www.reuters.com/article/usa-trade-china-brazil/brazil-preparing-for-end-of-u-s-china-trade-war-mulls-response-officials-idUSL1N20Z24N
As many of you know, and as previously mentioned in a past post, China and the US are in the middle of a trade war which has affected the demand of US soybeans dramatically. It has led to an increase in demand for soybeans from Brazil, but this could all be coming to an end. According to Reuters, and the US Trade Representative Robert Lightizer, "....negotiations are entering their final weeks on a possible accord, that could see China remove a 25 percent tariff on U.S. soy that upended global farm trade and shifted demand toward Brazil."
As this war between the countries progressed, China has had to rely on Brazil for the demand for soybeans to replace what they was importing from the U.S. In 2017/18, Brazil had a record-high production crop year that meant China did not have to rely to heavily on the United States. However, this year the output is expected to be lower and will Brazil would not be able to supply what is needed, and therefore, China will to be relying on the US again. Hence a need for the trade war (especially on soybeans) to be resolved.
Price update over the past week
In week 11, the price for soybean futures May 2019 contract opened at 898.2 cents, and closed at the end of the first day of trading at 890. With the price being at its lowest since January, the news of the US v China trade potentially coming to end caused the price of soybeans to increase throughout the week, with a slight blip on the 14th March where price decreased from the previous day. At the close of trading on Friday, the price had a 1.20% increase from its previous day and closed at 909.2.
Soybean meal followed the same sort of trend and increased throughout the week. On the close of trading on Monday, the price was at 301.3 cents, down from the close on Friday by 0.79%. From then, the price increased throughout the week and closed on 310.8, an increase of 9.5 overall. In comparison, soybean oil continued its trend of backwardation with the previous week. At close on Monday, price was at 29.64 cents, and apart from an increase on Tuesday, the price in general continued to fall and on Friday, closed at 29.43 cents.
As the season for growing soybeans is approaching, we may potentially see the 3 soybeans price begin to rise steadily. However, depending on the weather this year, growth could exceed last year or decrease which could pose for an interesting year.
Sources
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_quotes_globex.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
https://www.reuters.com/article/usa-trade-china-brazil/brazil-preparing-for-end-of-u-s-china-trade-war-mulls-response-officials-idUSL1N20Z24N
Sunday, March 10, 2019
Week 10 - The Crush Spread
THE CRUSH SPREAD
Crush spreads most often gives good signal of the futures price trend of a commodity. The crush is quoted as the difference between the combined sales value of soybean meal and oil and the price of soybeans. When a commodity is the product of refining another raw commodity, the refining spread between two commodities often indicates the direction of demand and supply.
At the start of this week, March contract for Monday (4th March, 2019), the crush spread for turning soybeans into meal and oil was at around 98 cents per bushel and at the end of the week the crush spread was at the 96 cents per bushel. This tells us a lot about the demand for soybeans and soybean products that trade on the CME. First, it tells us that a bumper crop increased inventories of both soybeans and soybean products, thus, causing prices to fall. Second, it tells us that the economics of processing soybeans into soybean products deteriorated over the week. Lastly, since the price difference is very narrow, the narrow spread occurs when the price of Soybean futures rises relative to the combined sales price of Soybean Oil and Meal futures. When this occurs, the spread declines. This means that, if traders anticipate same narrow crush spread for the coming week, they will buy Soybean futures and sell Soybean Meal and Soybean Oil futures.
Even though the price of the overall crush spread fell, processing raw soybeans into soybean oil was profitable on its own while meal processing was not. China, a huge consumer of soybean oil given the nation's massive population supported the price of soybean oil as they consumed and built inventories of the soybean product for the future.
SOURCES
https://www.cmegroup.com/education/courses/introduction-to-agriculture/grains-oilseeds/understanding-soybean-crush.html
Crush spreads most often gives good signal of the futures price trend of a commodity. The crush is quoted as the difference between the combined sales value of soybean meal and oil and the price of soybeans. When a commodity is the product of refining another raw commodity, the refining spread between two commodities often indicates the direction of demand and supply.
At the start of this week, March contract for Monday (4th March, 2019), the crush spread for turning soybeans into meal and oil was at around 98 cents per bushel and at the end of the week the crush spread was at the 96 cents per bushel. This tells us a lot about the demand for soybeans and soybean products that trade on the CME. First, it tells us that a bumper crop increased inventories of both soybeans and soybean products, thus, causing prices to fall. Second, it tells us that the economics of processing soybeans into soybean products deteriorated over the week. Lastly, since the price difference is very narrow, the narrow spread occurs when the price of Soybean futures rises relative to the combined sales price of Soybean Oil and Meal futures. When this occurs, the spread declines. This means that, if traders anticipate same narrow crush spread for the coming week, they will buy Soybean futures and sell Soybean Meal and Soybean Oil futures.
Even though the price of the overall crush spread fell, processing raw soybeans into soybean oil was profitable on its own while meal processing was not. China, a huge consumer of soybean oil given the nation's massive population supported the price of soybean oil as they consumed and built inventories of the soybean product for the future.
SOURCES
https://www.cmegroup.com/education/courses/introduction-to-agriculture/grains-oilseeds/understanding-soybean-crush.html
Sunday, March 3, 2019
Week 9 - The making of Soybean meal and oil
A brief overview of Soybean Meal and Oil
The majority of Soybean crops are divided between soybean meal and oil. Soybean meal is mainly used as a high protein diet for animals. Soybean oil is used for vegetable oil, and in the US, it is the main oil-seed used, accounting for around 90% of all oil-seed production. Soybean as a whole is the second most traded agricultural commodity. Soybean meal futures contract has 8 contract months and Soybean oil also has 8 contracts that are trade-able.
What influences the price?
Growing conditions, like other agricultural commodities are affected by the weather conditions during growing season. If the conditions are too wet, then production will be affected. As the US is the biggest producers of Soybean, the strength of US dollar affects prices. A weak dollar can ultimately affect production as farmers may not want to producer as much, knowing that they will not get the same or better price than the previous year.
The Chinese demand for Soybean, especially "meal" has a huge impact on prices. The Chinese demand for the protein feed accounts for around 2/3rds of the worlds feed. China is a price driver of Soybean and they are able to affect the market significantly due to being the largest importers.
Weekly Soybean/meal/oil Price for the March 2019 futures contract
Below is an overview of how the prices fluctuated for March 2019 futures contract for week 9. As you can see, Soybean and soybean meal have a relatively similar chart, such as that when Soybean prices decreased, Soybean meal generally decreased too. However, Soybean oil has a slightly different trend and decreased more often in comparison to the other two.
Future blogs will expand on how Soybean prices influences both Soybean meal and oil prices. Along with that, we will also provide updates on how the China vs US trade war is improving (or not).
Sources
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_contract_specifications.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_contract_specifications.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-meal_quotes_globex.html
The majority of Soybean crops are divided between soybean meal and oil. Soybean meal is mainly used as a high protein diet for animals. Soybean oil is used for vegetable oil, and in the US, it is the main oil-seed used, accounting for around 90% of all oil-seed production. Soybean as a whole is the second most traded agricultural commodity. Soybean meal futures contract has 8 contract months and Soybean oil also has 8 contracts that are trade-able.
What influences the price?
Growing conditions, like other agricultural commodities are affected by the weather conditions during growing season. If the conditions are too wet, then production will be affected. As the US is the biggest producers of Soybean, the strength of US dollar affects prices. A weak dollar can ultimately affect production as farmers may not want to producer as much, knowing that they will not get the same or better price than the previous year.
The Chinese demand for Soybean, especially "meal" has a huge impact on prices. The Chinese demand for the protein feed accounts for around 2/3rds of the worlds feed. China is a price driver of Soybean and they are able to affect the market significantly due to being the largest importers.
Weekly Soybean/meal/oil Price for the March 2019 futures contract
Below is an overview of how the prices fluctuated for March 2019 futures contract for week 9. As you can see, Soybean and soybean meal have a relatively similar chart, such as that when Soybean prices decreased, Soybean meal generally decreased too. However, Soybean oil has a slightly different trend and decreased more often in comparison to the other two.
Sources
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_contract_specifications.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_contract_specifications.html
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-meal_quotes_globex.html
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