Will expected larger 2022 soybean acres sink prices?

Just weeks ago, soybean futures prices looked poised to sink well below the $12-a-bushel threshold and fall potentially $1 lower as traders were anticipating a larger crop in South America and a large United States crop to be planted in spring 2022.

Trade was also monitoring the fact that ending stocks on U.S. Department of Agriculture reports had been slowly creeping higher since May 2021.

The Nov. 9, the USDA report again confirmed that soybean supplies were indeed getting larger with ending stocks increasing to 340 million bushels (up from 320 million bushels the month prior). However, this increase was not as large as what trade was anticipating the number to be.

The surprising result was a bullish key reversal on daily charts, and a near $0.60 rally off the morning price low.

This technical bottoming action on daily charts triggered short covering from traders in the following days with prices now $1 off their lows in just over a week. Where to from here?

More planted acres in the U.S. this spring?

Due to high input prices for corn, traders assume more acres will be switched to soybeans in the U.S. this spring. This past spring 87.2 million acres were planted to soybeans, up from 83.4 million acres in the 2020-21 season, and up from 76.1 million acres in the 2019-20 season.

Current USDA baseline projections, released a few weeks ago, peg 2022 soybean acres at 87.5 million acres. Only a slight increase from this past year. Why only a slight increase and not the huge increase assumed by some traders?

It seems the USDA assumes a more traditional rotation will occur or that some farmers in the northern Plains may plant spring wheat or oats instead, now that those commodity prices have had such a significant price increase. In the southern U.S., some acres that had been planted as soybeans may get switched to cotton, as there has also been a significant price increase for cotton prices.

Technicals

With the impressive $1 rally already seen, one has to wonder how high soybean prices can go, especially as soybeans are, for the moment, fundamentally the “follower” in the grain complex as corn and wheat fundamentals remain a tad friendlier.

Technically speaking, price support for the January 2022 soybean futures is currently $12.50 a bushel, with $12 a bushel as major support underneath the contract on daily charts. The next short term price hurdle for the January 2022 soybean futures contract to leap over is $13 a bushel. This is a major resistance area as it is where the 100-day and 200-day moving averages meet. Also, $13.04-1/4 was the high from Sept. 30, which was also the date of the bearish USDA Quarterly Stocks report.

A price close above $13 a bushel would likely trigger additional fund and technical buying from traders and would open the door to $14 a bushel January futures prices.

Seasonals

Also giving confidence to a potential further rally in soybeans is the fact that seasonally soybean futures have a tendency to find a “pre-winter price low” in mid- to late November. Following this November low, soybean futures prices have a tendency to work higher well into mid-January as both the U.S. harvest low is in place, and trade switches its focus to South American weather and a fight for spring planted acres in the states.

Soybean meal

Soybean meal had a major rally in late October into early November. It was undervalued and was quickly viewed as a cheaper feed substitute for livestock producers. Prices were as low as $309 on the December contract, with a rally to $380 in just one month.

What has truly propelled this price rally was something new to the supply and demand situation—tight lysine supplies.

China is the main supplier of lysine, and lysine is needed as an additive to dried distillers grains to aid in boosting protein in feed rations. If lysine is not available, livestock producers may switch feed rations toward soybean meal. Because of this sudden “new demand” for soybean meal, soybean prices are gaining a boost as crush demand is expected to remain strong.

Funds are buying

Due to inflationary concerns, funds are flocking back into commodities and are buying in droves.

In early November, funds were net long a mere 12,137 contracts. This is in sharp contrast to their peak of buying earlier in 2021 when they were long 180,014 contracts as of the April 27 CFTC report.

The most recent report showed funds to be long closer to 30,000 contracts, showing modest buying interest in soybeans. Fund traders pay attention to seasonal price patterns, and technical chart patterns as well as supply and demand fundamentals. And right now, the conditions seem to be right to entice them to invest in soybeans and other ag commodities.

South American weather

The soybean crop in South America is nearly planted in mostly ideal conditions. Getting the crop in the ground is one thing, but obviously weather during critical growing stages is entirely another. Weather forecasters are putting better odds on hot and dry La Nina weather conditions for the coming months in South America.

Brazil is important to watch due to the exceedingly large amounts of soybeans they export to China. Argentina is important to monitor because they are the world’s largest exporter of soybean meal and soybean oil. If they have weather issues, that export business has high odds of coming to the U.S.

Due to the reality of tighter global supplies of soybeans and oilseed commodities, the world needs a big crop from Brazil and Argentina to keep global supplies sufficient. Should a true weather issue emerge in the coming weeks that will support a soybean rally even further.

While soybean’s fundamentals are currently not quite as friendly as the corn and wheat story, it remains a narrative that needs to be monitored closely.

Lastly, remember that in the big picture in the U.S., there are currently nine grain and oilseed commodities with tight ending stocks—winter wheat, corn, soybeans, oats, barley, canola, spring wheat, cotton and sorghum—and all are fighting for acres for this upcoming growing season. To have nine commodities all with tight supplies at the same time is historic, and somewhat unnerving at the same time.

With inflation concerns, tight supplies, strong demand, a questionable upcoming growing season in South America and a fight for acres for this upcoming U.S. growing season, this soybean story may only be hinting at the beginning of what may come for prices in 2022.

Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].