Each year is a new adventure when it comes to agricultural commodities. Over the past five years, almost picture-perfect weather conditions have resulted in bumper crops and enough grains the meet global requirements, and then some. Inventories swelled to levels where each crop year produced enough grains and oilseeds to carryover supplies to the next year. At the same time, demand for these agricultural commodities is climbing as population and wealth around the world rises.
In 1960, there were approximately three billion people on the earth, and today the number stands at 7.455 billion. Each quarter the world adds another twenty million hungry mouths to feed. Therefore, more people, with more money, are competing for finite agricultural (and other) commodities each day. During years where crop yields produce bumper supplies, prices have remained low. However, when a shortage develops, watch out because prices could explode to the upside.
The 2012 drought that caused corn to move to over $8 per bushel, soybeans to trade at almost $18, and wheat to rise to over $9 per bushel has faded in the market’s rearview mirror. Consumers have become complacent about prices for the grains and oilseed. However, before the first seeds go into the ground in 2018 in the soybean market, we are seeing bullish rumblings that are taking the price higher.
As the weekly chart illustrates, the price of soybeans had rallied from $9.3725 in early January to highs of $10.71 per bushel recently, an increase of over 14 percent. Dry conditions in Argentina during the growing season in the southern hemisphere caused the price appreciation. Meanwhile, most consumers do not require the raw oilseed and after harvesting it makes its way to processing plants where crushers turn soybeans into soybean oil and meal. It has been the price action in the soybean meal market that has contributed to the rise in the price of the oilseed.
The price of soybean meal has moved from $308.10 per ton in early January to its recent high at $399.70, an increase of almost 30 percent in fewer than two months. Soybean meal is the primary ingredient in animal feed which could impact the price of meats in the coming months as ranchers will be faced with higher input prices when it comes to raising animal protein like cattle, hogs, chickens, and turkeys.
The price of soybeans and other grains moved higher before the start of the 2018 crop year in the United States and other producing countries in the northern hemisphere. If Mother Nature does not provide the weather conditions we have become accustomed to over the past five years, we could witness dramatic price appreciation in the grain and oilseed markets in the coming weeks and months.
While many commodities have been moving higher since early 2016, agricultural products have not participated in the rally, to a great extent. The potential for higher prices and increased price volatility over coming weeks and months presents an opportunity for nimble traders in these markets.