While canola had undergone another week of sharp losses before bouncing back with a double-digit gain on March 23, the Chicago soy complex also had a week to forget.
The May soybean contract fell to US$14.1950 per bushel at the end of March 23 after a one-day, 29-cent drop. It was the ninth negative session in 13 for May soybeans, the worst drop in a session since Feb. 28 and the daytime low of US$14.1525/bu. was the contract’s lowest point since Oct. 31. Overall, the price dropped 72 cents (4.9 per cent) from one week earlier. Meanwhile, November soybeans were on a 13-day losing streak, falling to its lowest point (US$12.50/tonne) since July 2022 and ending the day with a US$1.4050 spread between it and the July contract.
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It was a worse week for the soy crush. After losing 2.47 United States cents per pound on March 23, its biggest drop since Dec. 1, the May Chicago soyoil contract shed 5.56 U.S. cents/lb. (9.4 per cent) since March 16. The May soymeal contract has lost ground in seven straight sessions, losing US$13.30/tonne on March 23 for its largest fall since Feb. 28 and retreating US$35.70/tonne (7.5 per cent) in one week.
There are a multitude of factors contributing to the sharp decline in soybean prices as of late, but all eyes are currently on South America.
As fall approaches on the continent, soybean harvests in both Brazil and Argentina are already well underway. Despite heavy rains in some areas, the U.S. Department of Agriculture (USDA) projected a record crop from Brazil at 153 million tonnes as of March 8, 23.5 million more than last year and 24.72 million more than the 2017 to 2021 average.
On the other hand, Argentina’s projected soybean crop is withering under severe drought. The USDA’s estimate is 33 million tonnes, 10.9 million less than last year, with the Buenos Aires Grain Exchange (BAGE) recently trimming its estimate to 25 million. At the beginning of 2023, BAGE had estimated 48 million tonnes.
Despite Argentina’s struggles, there is likely to be a net gain for South America’s soybean crop and the influx onto the global market will reduce demand for U.S. soybeans.
The U.S. Federal Reserve announced on Wednesday it was raising its key interest rates by 25 basis points, which typically results in an across-the-board commodity selloff. Inflation fears plus the collapses of Silicon Valley and Signature Banks and Credit Suisse’s close call are also weighing on prices. The last time new crop soybeans fell so far in March was during the financial crisis of 2008, but prices are not expected to drop 24 per cent this time around.
There are a few signs that the bottom is approaching. Soybeans and soymeal were both net long by more than 120,000 contracts as of March 14 and haven’t yet seen the type of liquidations which put corn and canola net short. Nearby and deferred contracts for beans, oil and meal all appeared to be oversold with the Relative Strength Index (RSI) under 30. Reduced soybean supplies in Argentina will also threaten the country’s status as the world’s largest exporter of oil and meal, which could underpin prices.
It’s often a given that wherever the Chicago soy complex goes, canola will follow. However, March 23 shows this isn’t always the case. The ongoing recovery of the Canadian canola crop since the 2021 drought may keep a lid on rising prices, but it remains to be seen where the Chicago soy complex will go next.
