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Which face will soybean futures show in 2018?

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Soybean futures resumed their decline in 2017, falling 4.5% to give back a portion of their gains the year before.

Still, the overall decline disguised a year of two halves.

 

In the first six months, soybean futures dropped, taking losses for 2017 above 9% at one point, as expectations for US production grew.

 

However, they revived in the second half of year, supported by buoyant Chinese imports, and weather setbacks to South American plantings which boded ill for the harvests now beginning (in Brazil).

 

Which face will soybean futures show in 2018? Market experts give their views.

 

 

Mike McGlone, Bloomberg Intelligence senior commodity strategist

“If the dollar descends more from its peak, soybeans should be among the primary agriculture commodity beneficiaries.

 

“In the past 10 and 20 years, soybeans have the highest negative correlation to the US trade-weighed broad dollar among the ags.

 

“With exports on pace to exceed 50% of production in 2017 for the first time, changes in the dollar will increasingly influence soybean prices. The 10-year annual soybeans-to- dollar correlation is a negative 0.65 vs. 0.53 in the past 20 years.

 

“Relative prices for US-traded soybean futures have never been lower, with exports-to-production higher and the dollar potentially just starting to retreat from a 14-year high.

 

“The Trump administration, focused on reducing trade deficits, is added support.”

 

 

Citi

“Chicago soybean prices are expected to average about $9.50 a bushel in the current season which is bearish the forwards.

 

“New-crop US soy stocks-to-use ratio of 10% would be more than three times 2013-14 levels, and twice 2014-2016 levels.

 

“In our view, this should contain Chicago soy trading well-below $10.50 a bushel on normal weather and implies pricing should not scale above $10 a bushel on a sustained basis until perhaps the 2018-19 harvest.

 

“Given the better profitability for soy versus the grains (versus both total and variable farmer costs) and the ongoing growth in Chinese imports to utilise local crush capacity, we model US area to expand marginally in 2018 and for Latin American supply growth to continue apace into 2020.

 

“The soybean export story continues to remain constructive, with China imports likely to hit a record 100m tonnes in 2018-19, although Brazil has taken top share away from the US in recent years and that seems likely to stay.”

 

 

Mike Zuzolo, Global Commodity Analytics

“Other than South American weather, to me, the single biggest factor in the upside or downside price potential for soybeans rests with the soymeal outlook.

 

“And in my view, the soymeal outlook for 2018 both fundamentally and technically appears mostly supportive.

 

“This doesn’t mean that ‘beans in the teens’ is likely without the help of weather, but it should suggest to you that I believe rallies to long-term major resistance of $10.40 a bushel should be possible.

 

“Chart technicals show a correction back to major support levels - in the case of meal, closer to $300 a short ton and in the case for soybeans $9.40 a bushel. I expect these levels to holdā€up well at least until we get to the US planting time period this year.

 

“After that, if 2018 acres show soybeans above this past year, I could see the $9 futures level as the next major support.

 

“It is key for the support to hold 0- if it doesn’t, the soybeans could become the ‘leader to the downside’ once again, and maintain that label until after the US 2018 harvest.”

 

 

Goldman Sachs

“Soybean production input costs declined significantly over the last few years.

 

“We also now see this process as having reached a bottom - with stabilisation, or slight increases, forecast for the two key drivers of the cost deflation: energy and the Brazilian real.

 

“On the demand side, we see higher demand for soybeans versus corn as the global growth recovery continues, and as China continues to rebalance towards a more consumer-driven economy.

 

“Accordingly, we see the current soybean/corn ratio of 2.8 being closer to a ‘new normal’ equilibrium than the historical 2.5 average.

 

“Combining these factors, and assuming normal weather conditions, we continue to forecast soybean sat $9.80 a bushel over 3, 6 and 12 months.”

 

 

Rabobank

“Global soybean markets have the potential to behave very unpredictably in 2018-19, with several key drivers of price volatility.

 

“Global biodiesel policy, feed demand growth and increasing global trade are likely to be mildly supportive for prices in the 2018-19 season as global balance sheets – and in particular major exporter surpluses – contract.

 

“In our base case, we view a tightening global soybean balance sheet as mildly supportive to Chicago prices throughout 2018-19.

 

“We see potential for Chicago prices to remain above $10 a bushel for longer periods of time than in the past two seasons, as global stocks-to-use contracts by 2%, to 27%.

 

“The contraction of global stocks is viewed as being due to a combination of normalisation of yields, particularly across the Americas, as well as a 3.5% increase in global crush demand.

 

“Of most significance is the tightening of ending stocks in major exporting countries, as trade is set to increase a further 5.5m tonnes year on year, to 156.3m tonnes.”

 

 

Societe Generale

“Both our 6-month and 12-month forecasts for soybean [futures] are slightly bearish at $9.7 a bushel, which is currently lower than the forward curve

 

“Record inventories, largely favourable weather in the Latam region in 2017-18 and the potential for a substantial increase in acreage and a recovery in yields in the US in 2018-19 are the key reasons for our bearish view.

 

“We see global soybean production edging down in 2017-18. We forecast a 0.7% year on year drop to 349m tonnes, with a projected 5.5% decline in yields more than offsetting the impact of an estimated 5.1% increase in acreage.

 

“Soybean yields across the world are set to normalise, in our view, from the record level in 2016-17.

 

“Given the current forward prices for 2018, global soybean acreage looks set to increase, which would further boost inventories in the US. This is a key reason for our slightly bearish view on soybean in 2018.”

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