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Soybean futures notch lower but stay close to record levels

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Traders have stepped in to take profit on soybean futures over the last week as the commodity trades near all-time high levels. CBOT soybean futures are trading at $16.51 per bushel, up from $13.62 at the start of January, and up from $12.24 a year ago.

Like with most commodities, the war in Ukraine cranked up soybean prices on concerns about supply issues as Russia is a significant producer of the bean, but now supply issues in Argentina, Brazil and Paraguay are adding to the tightness in the market.

Only five months ago the US Department of Agriculture was still forecasting that global soybean producers would grow a surplus of 5 million tonnes. Now, this forecast has been revised to a deficit of 2 million tonne shortage. Global soybean ending stocks are expected to drop to 95 million tonnes, 7 million tonnes less than initially expected.

Sanctions on Russia starting to play a role

Sanctions on Russia and Russian fuel are playing a role in several harvesting regions, including major producer Argentina, where a shortage of diesel is impacting harvesting and truck transport between the fields and the ports. The rise in fuel prices has prompted Argentina’s National Transport Federation to ask for higher grain freight rates and threaten to start a strike next week if their demands are not met. The strike would compound already existing harvest problems, including drought during this crop season which runs between October and November followed by frost in late March in some of the growing regions. S&P Global expects Argentina to produce between 40 million-42 million metric tonnes of soy in April and May, far below the near 55 million mt expected before the drought hit at the start of the year

With Argentina being the world’s largest exporter of soybean meal and soybean oil, prices of both commodities are already showing the pinch.

US farmers looking to switch out of soybean

US farmers are also changing their planting decisions based on the war in Ukraine. Ukraine is a major wheat and corn producer and prices of both of these commodities have soared since the start of the conflict. Although prices for soybean have risen more than corn, and they are at a record high, the yield per acre and the return for farmers after all the fertilizer, pesticides and seed costs are still higher for corn, causing farmers to switch away from soybean.

In Russia, the domestic planting and export situation has become more complicated over the last few years as the country increased production to cater to its main foreign buyer, China, but then increased export taxes to stem the outflow of the commodity. During the US-China trade wars under Donald Trump Russia made land available to Chinese farmers and also ramped up its own production to step into the gap left by the disruption of the US soybean exports to China. But since then internal Russian demand for soy has soared, as have prices, and at the end of last year Russia only allowed a quarter of its previous exports out of the country. This may change over the coming months as sanctions continue to bite and as the country seeks to make additional income.

Still, while the conflict lasts there will be little impetus for soybean prices to trade much lower than they do now.

WisdomTree Soybean Oil ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Soybean Oil
Hargreaves Lansdown | Interactive Investor AJ Bell Youinvest | Charles Stanley Direct | EQi
GB00B15KY435 SOYO USD

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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