It was probably not what many people expected in this era of food commodity-fueled inflation, but soybeans are in a bear market after a huge upward revision in US stockpiles of the grain sent shockwaves and a selloff through the trade.
As of Thursday, the most-active soybean futures contract on the Chicago Board of Trade, November, settled at just under $13.20 a bushel, down 21% from a nine-year high of $16.67 seen on the exchange on May 12.
Market terminology constitutes that any security that loses 20% or more of its value from a recent high is technically in a bear market.
The plunge in soybean prices was not without warning.
As early as May 21—or slightly over a week after that nine-year high on the CBOT—grains analyst Todd Huffman warned on DTN.com’s Progressive Farmer blog that soybean’s cash prices were falling faster than its futures, foreboding a market collapse.
Huffman said DTN's National Soybean Index, a measure of cash prices, hit a high of $16.47 per bushel on May 12, as futures soared to the $16.67 peak, just before the US Department of Agriculture estimated old-crop ending soybean stocks at 120 million bushels for a fourth month in a row.
By May 20, the index for cash soybeans had fallen to $15.23, Huffman noted, adding:
“A drop of $1.24 per bushel at this high price level is well within the range of volatility we would normally expect this time of year and is not a bearish concern by itself. What is troubling is how quickly DTN's cash index is losing ground to the futures board.”
“Clearly, the surge of commercial demand we witnessed for cash soybeans across the Midwest in April and early May has cooled and we haven't seen it stabilize yet.”
In its updated outlook for June, the USDA forecast that the carryover of soybeans will be around 155 million bushels by Sept. 1, 2022. That would be up 15 million bushels from its May outlook, and 20 million bushels higher from its original target for 2021.
Soybean production in 2021 was forecast at 4.405 billion bushels, the USDA said. That would be 270 million bushels, or 7%, higher than the expectation of 4.135 billion bushels for 2020.
The department did not revise demand expectations, however, leaving forecasts for total soybean supply in 2021-22 at 4.575 billion bushels.
Commodity-fueled inflation has become a hot-button issue in the United States since vaccine breakthroughs for the COVID-19 in November unleashed price rallies in most raw materials amid forecasts for rapid economic recovery from the pandemic.
Government aid totaling trillions of dollars has also left many Americans with enough cash on the side to buy properties and invest in stocks, further fueling inflation. Constraints in supply chains seeing explosive demand after months of lax activity have added to the upward price pressure in most commodities.
Since the end of the second quarter, however, some of these trends have started receding as relief programs for the pandemic, along with compensation for the unemployed, near their expiry.
Still, many commodities, like oil, trade near multi-year highs.
On the agricultural front, soybeans are the first to slip into a bear market, after also losing 17% of their value since the start of the year.
Other crop prices in the red for 2021 are cocoa, which is down 12% year-to-date, and wheat, which has lost 4%.
Soybeans may have more to lose
Investing.com’s Daily Technical Outlook has tagged CBOT’s November soybeans as a “Strong Sell”, with its ‘Fibonacci’ and ‘Classic’ modeling projecting lows of between $12.96 and $12.80 per bushel, respectively, in the near term.
The Fibonacci model begins support at $13.13, then moves $13.06 before residing at $12.96.
The Classic model sees first support at $13.08, second at $12.96 and finally at $12.80.
As always, we urge you to consider our modeling and use your own discretion for trading.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.