Is the bean rally really all about a bean shortage? Perhaps more about logistics? Argentina is a massive supplier of soy products to the world market. In 2016/17 Argentina exported 31.32 mmt (production of 33.28mmt) of soymeal to the world market out of a total of 67.18 mmt exported; that’s 46.6 percent of all exports. Pretty amazing. For perspective the US exported 10.52 mmt in 2016/17. Global soy meal ending stocks are forecast at just 4.8 percent compared to the staggering 28.6 percent stocks to use ratio of soybeans themselves. I’m finding too much reliance on one party’s soy meal production is a large part of the reason for this rally. It is times like this that creates incentive for other soybean processors to come online such as the ones in North Dakota, South Dakota, and Michigan where as much as 120 million bushels of crush capacity could be available in the next few years. With the Argentine Peso weak relative to the US dollar the farmer there has little incentive to move beans as they probably feel they’d rather own beans than Peso’s. Until they fear a large move down in the futures that is more devastating than the currency situation they currently face it’s tough for the market to force beans to crushers, especially with a rally taking place. All of this has soy meal business moving to the US where basis has improved.
Is this rally about beans themselves? No, not really… more so misappropriated crush capacity and input logistics as far as I can tell. For a nation that exports over 90 percent of domestic soy meal production there is a tremendous amount of risk when you’re totally reliant on exporting a product for margin. It just so happens that now the market is realizing how helpless it is when a country that produced just 16.4 percent of the worlds soybeans in 2016/17 has a production hiccup and what that means to the soy meal market. In all of this I wonder what effect the US tariff on Argentine bio-diesel will be since it will likely have an effect on soy processing margin in one form or another.
How high will beans go? It’s hard to say. That’s why we have price discovery taking place during such a large portion of the day; so the market can debate fair value. With rains forecast to fall in Argentina this weekend traders will no doubt be watching updated weather models and looking to see what precipitation actually hits the ground. Until then we’ll have to see where the money pushes prices and for now that trend is up.