Spend Matters welcomes this guest post from Yuliya Nam-Wright, of Mintec.
If you are looking for an example of a well-supplied market, look no further than soybeans. The global soybean market has seen two consecutive years of record production. Prices, however, have been moving up steadily since autumn, despite the 2015/2016 promise to deliver another record crop.
Since the start of October 2015, futures for soybeans in Chicago rose by 15% and oil futures were up by 25%. So what is pushing prices up?
Of course, we have seen a moderate recovery in crude oil prices since the start of the year, and as with most vegetable oils, soybean oil can be used as a feedstock for biofuel, so price is influenced by crude oil price.
However, soybean oil prices started to rise before the crude oil recovery, so the more important driver has been the perceived tightening of supply in other major vegetable oils, primarily palm oil. Supply of palm oil has been tightened by the impact of dry conditions in major producing countries, pushing the whole vegetable oil complex up.
Until recently, all looked relatively calm for soybean oil as the market expected good supply, and tightness in other vegetable oil markets was the only factor supporting prices. However, there has been a noticeable change of sentiment in the market in recent weeks.
Heavier-than-usual rains in April led to severe flooding in Argentina and southern Brazil, leading to harvest delays. Preliminary estimates show that around 2 million to 3 million tonnes, or around 5%, of soybean crop in Argentina, may have been lost as a result. This does not seem to be significant compared with the scale of global production, but its timing right before harvesting, and also the accelerated pace of China’s demand, pushed soybean prices up further.
Chinese soybean imports are a closely watched indicator of world demand and have been subject to much speculation in recent months. Current estimates peg 2015/2016 imports at 83 million tonnes, up 6% year-on-year. In March, imports have been reported to rise 36% year-on-year, to 6.1 million tonnes.
Global soybean production is expected to remain close to last year’s record level at 320.2 million tonnes, and production of soybean oil is also set to rise 6%, to 52 million tonnes, in 2015/2016. These forecasts, however, do not take potential damage to the South American crop into account, the impact of which is set to be seen in the weeks to come.