Soybeans and Soybean Oil: All Eyes on South America

Spend Matters welcomes a guest post from Liliana Gonzalez of Mintec

In September 2013 we wrote about the crop prospects in the Northern Hemisphere for soybeans and the ample supply forecast in major producing countries. So, six months on, let’s look at what’s happening with soybeans and soybean oil on the other side of the Equator.

soybean oil prices

At this time of year, the South American soybean harvest is in full swing and the market’s attention has turned to the top producing countries of Brazil and Argentina. Weather conditions there have been the dominant factor on soybean and soybean oil prices. Soybean oil prices on CBOT have risen 11 percent since the start of 2014, and soybeans have risen nearly 10 percent over the same period.

Simply put, the weather has been unfavourable. It was far too dry in southern Brazil and in La Pampa in Argentina during January and into February, but too wet since. Low rain levels cause drops in the soybeans yield and the recent rains have made the fields waterlogged, making it difficult to conduct the harvest. If conditions in the wet fields continue, farmers may abandon production altogether. All of these factors have led to reduced crops in these regions.

Brazil’s production is expected at 88m tons, a drop of 3 percent from January’s estimate. Argentina’s production is forecast at 53.5m tons, also down 2 percent from last month. These reductions in forecast have pushed prices higher.

The price rises are also being helped by the soybean farmers themselves. In Brazil, the farmers are choosing to hold on to their soyabeans rather than selling them with the hope that prices will continue to rise. This has caused a temporary restriction in supply. The fall of the peso and the inclusion of a 35-percent export tax on both soybeans and their products in Argentina have also encouraged farmers into a “wait and see” state of mind.

Despite this, soybean and soybean oil production is forecast to hit a record this season. At 284m tons, the production is up 5 percent year-over-year and ending stocks are also up 4 percent year-over-year, to 27m tons. This is helping to keep soybean oil prices approximately 25 percent cheaper than they were during the peaks of 2011 and 2012.

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