May 13, 2021

Commodity Insight: U.S. on verge of running out of soybeans

The average American celebrates Independence Day on July 4 with gatherings of family and friends, barbecues, parades, concerts and fireworks. However, farmers, ranchers and those that produce agricultural products such as soy oil and meal, as well ag speculators, will witness a different kind of fireworks in mid-July because the United States may literally run out of soybeans for domestic use.

Before I wade neck deep into that bold forecast, allow me to repost my weekly column from last fall entitled, “U.S. soybean stocks razor thin.”

“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,” I wrote. “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?’”

In the final paragraphs of the same column, I wrote: “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.”

The most recent USDA report regarding ending stocks of soybeans shows supplies pegged for the third month in a row at 120 million bushels. It is generally acknowledged that 120 million bushels is literally “pipeline” supplies.

It is also being predicted by many the USDA will never print or admit that ending supplies are lower yet. The reason is simple: The USDA does not wish to throw gasoline on a rip-roaring fire.

The USDA is content to allow the market to do what it wants to do and not encourage higher prices by touting a wildly bullish scenario.

A few weeks ago, when the USDA released a monthly stocks report showing ending stocks at pipeline levels once again, it also raised the season average price forecast by 10 cents to $11.25 bushel.

The modest 10-cent average price gain may seem irrelevant, but understand that it was the largest price increase since 2011-2012, when the USDA showed a 25-cent gain. And in 2012-2013 summer soybean prices posted a high of nearly $17.95 a bushel.

Do note that old crop corn stocks are also historically tight. This week, corn prices rose to levels not seen in 8 1/2 years, when the futures market kissed $6.01 a bushel.

In Brazil, where weather issues are threatening their corn crop, prices are $7.15 a bushel. In China, corn prices are a tad over $10.60 a bushel, which helps explain why they have an insatiable appetite for U.S. corn.

And though corn remains quite bullish, my work suggests soybeans are more bullish yet. And to repeat myself, last November I wrote, “Given the right set of circumstances, the potential for the United States to run out of soybeans remains a distinct possibility.”

There are numerous examples over the years of a commodity being squeezed so tight due to shortages that prices rallied dramatically to ration existing supplies.

From amosweb.com, defining the “price rationing” phrase: “The distribution or allocation of a limited commodity using markets and prices. Rationing is needed due to the scarcity problem. Because wants and needs are unlimited, but resources are limited, available commodities must be rationed out to competing uses. Markets ration commodities by limiting the purchase only to those buyers willing and able to pay the price.”

A wild card for soybean and corn supplies between now and the fall harvest is the fact that a corn market is made or broken in July when the crop tassels and soybeans in August when the crop flowers.

Imagine, if you will, a stiff price rationing rally underway for soybeans — or corn — when suddenly weather issues surface in the heart of the growing season.

How high could prices possibly spike on the upside in light of the potential for the United States to “run outta” soybeans in mid-July? Just how high would soybean prices have to rally to kill demand?

Moving forward, soybean prices are poised to embark on a price rationing rally to prevent a scenario where soybean crushers simply cannot find soybeans.

And you can read more about that unfolding scenario at commodityinsite.com and follow the fireworks that will be heard loudly and deafeningly sometime in mid-July.