Commodity Insight: U.S. soybean stocks razor thin

Every day, headlines blare rehashing the presidential election, the election recount, coronavirus cases rising exponentially and news that vaccines are available to allow the world to get back to normal.

Other shrieking headlines tout what the stock market will do moving forward and how soon the economy gets back to normal. Bellowing headlines about the Federal Reserve and the potential for another stimulus package for the American people are routine and have become the norm.

But one market is not gathering headlines nor getting much lip service. That market is soybeans and ending supplies.

Two years ago, projected U.S carryout stocks were estimated to be 900 million bushels. A year ago, ending supplies were pegged at 523 million bushels. Now, the U.S. Department of Agriculture forecast stocks of U.S. soybeans at 190 million bushels.

My work suggests ending stocks to be under 100 million. And the historic decline with ending U.S. soybean stocks has many whispering, “Are we going to run out?”

First, let me state with conviction, in the world of commodities, “you never run out.” What unfolds in a tight stocks scenario is prices rise so high as to simply destroy demand.

It goes back to that old saw, “the best cure for high prices is high prices.” But it is a fact, if available supplies of a given commodity are drawn down to razor-thin levels, prices for that commodity can rise to heights that are simply hard to fathom.

Already, China is buying far more soybeans from Brazil and the United States than expected, which is drawing soybean stocks down sharply. In fact, here is a booming headline from Forbes — that seldom highlights any ag market — that states: "The World's Largest Soybean Exporter Wants To Import Soybeans. What Happened?"

Forbes continued: “Brazil is the world’s leading producer and exporter of soybeans, but rising domestic usage and record sales to China have drained supplies. The government has announced the suspension of import duties in an attempt to encourage imports and suppress rampant domestic food inflation.”

With ending stocks of U.S. soybeans pegged now 190 million bushels, there is little room for any further decline. Yet, in the Ukraine, Argentina and Brazil, weather issues are surfacing due to a serious lack of rainfall. I cannot recall witnessing three major grain producers having weather issues at the same time.

And now, several respected research firms are on record as predicting cuts in production of both corn and soybeans for those countries — again. There is little room left for soybean supplies to tighten without leading to a sharp rise with prices.

The USDA has only lowered ending stocks of U.S. soybeans below 200 million bushels in seven years since 2000. Here is the rub: Stocks of U.S. soybeans were so tight in 2013-2014 that a record amount of imported soybeans were needed desperately to cap price rallies.

And in 2013 soybean prices rose to $17.94 a bushel, and in 2014 prices rose to $15.33. Right now, U.S. soybean prices are south of $12.

Still, the soybean market is not making headlines or causing tongues to wag. Anymore, a market not making headlines is ignored. Shrugged off. It is forgotten as other headlines cause a stir.

Here is a headline this week that competed with soybeans. From USA Today: "A pigeon was just sold for $1.9 million to a Chinese bidder under the name 'Super Duper.'" And from BBC: "Denmark to cull up to 17 million mink amid coronavirus fears."

There were more inquiries about those headlines than anything that had to do with ending stocks of soybeans or the threatening weather surfacing in South America and the Ukraine.

When it comes to headlines, here is one from years ago printed on the front page of a tabloid generally found in a grocery store. It did cause a stir.

The headline screamed: “Headless Body Found In Topless Bar.” Tongues wagged over that headline, believe me.

It has been shocking the USDA lowered soybean stocks so dramatically as it did over the past few months. Such data sets the stage for higher and just maybe unprecedented soybean prices, depending on Chinese buying habits and the weather issues plaguing several of the world’s major grain producers.

Given the right set of circumstances, the potential for the United States to run out of soybeans remains a distinct possibility. However, running out of a commodity never happens.

But historic bull markets do happen when supplies are historically tight. And if my work is correct, U.S. soybean stocks are razor thin.