Soybean Volatility Could Get Wild

Soybean Volatility Could Get Wild
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Soybeans came into the 2018 crop year in the northern hemisphere on a bullish note. Drought conditions in Argentina lifted the price of soybeans and a primary soybean product, soybean meal which is the main ingredient in animal feed. While the United States is the world’s leading producer of the oilseed each year, South American countries produce the marginal bushel. With the supply and demand equation for soybeans tightening, each bushel produced around the world counts these days when it comes to feeding the world.

After five consecutive years of bumper soybean crops, the price of the oilseed declined from its all-time high at $17.9475 per bushel in 2012. A weak crop in the U.S. that year lifted the price of soybeans into the high teens for the first time in modern history. However, over the following years, the price came down falling to a bottom of $8.4425 per bushel in late 2015 as abundant supplies created a glut in the market.

The world has become more crowded over past years. At the turn of this century, approximately six billion people inhabited our planet. Recently, that number stood at 7.471 billion. At the same time, wealth has been rising in China, the world’s most populous nation, so more people with more financial resources are competing for finite natural resources each day. Over the past five years, the world has become complacent and addicted to conditions of oversupply in the soybean, and many other agricultural markets.

The demographic trend could prove explosive for the price of the oilseed the next time there is a crop year that produces less than anticipated yields from fertile soils around the world. Just before the turn of the century in 1999, the price of soybeans $4.015 per bushel. 

Source: CQG

As the long-term quarterly chart highlights, the price of beans has been moving steadily higher since late 1999, and the oilseed has made higher lows. Even though we have witnessed five straight years of bumper crops, the price never violated a previous significant low which is a sign of the impact of demographics on the price of soybeans. Moreover, price momentum on the long-term chart crossed to the upside in early 2016, and the market remains in a bullish technical trend as we move forward into a time where the final 2018 crop is uncertain. The weather conditions across the fertile plains of the U.S. will be the ultimate judge when it comes to the path of least resistance for the price of the oilseed over coming weeks and months as the planting season turning into the growing season leading to the harvest. Anything below a bumper crop could launch the price significantly higher based on rising global demand.

Meanwhile, the soybean market is also facing a global trade issue as we head into the time of the year when uncertainty about price direction is at its peak. China buys around one-quarter of U.S. production each year and protectionist trade policies and retaliation could cause price distortions in the soybean market this year.

These days, many factors are likely to cause increased volatility in the soybean market. It is likely that the volatile nature of the market will make it fertile ground for nimble traders looking to take advantage of wide price variance over the coming weeks and months.


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