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Soybean Drama: Speculation of South American Supply Drags Prices Down

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Soybean prices fell on January 20

On January 20, 2016, soybean futures contracts on the CBOT (Chicago Board of Trade) for January expiry decreased by about 1.1%, settling at $8.74 per bushel. This decline was due to increased speculation of South American output, which has hurt sentiments for soybean exports. Following suit, the Teucrium Soybean Fund (SOYB) decreased by 1.3% on the same day.

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Why weather matters: harvest likes it warm and dry

Weather conditions in South American soybean producing regions are anticipated to remain hot and dry for the week ending January 24. But the South American soybean crop is currently at the stage of harvesting. We should note that warm and dry weather conditions support harvesting activities.

All that said, analysts believe that the soybean crop has not been severely affected as was projected by unfavorable weather conditions in the crop developmental stage. Quality parameters appear to be strong, and the hot and dry weather conditions should support in harvesting and increase the supply. This suggests that US soybeans might have to face increased competition in the exports market. But the speculation of higher South American competition appears to have pushed soybean prices down on January 20.

China in the soybean game

China’s National Grain and Oil Information Center has stated that China could import a record amount of soybeans in 2016, projecting 85 million tons. This would mean an approximate 9% year-over-year rise in soybean imports compared to 2015. The notion of stronger demand from China, then, helped support soybean export sentiments on January 20, and this speculation of increased exports boosted soybean prices on the day.

But soybean oil and soybean meal still closed low on January 20 due to squeezing margins and the spillover from global oil prices. This negative price movement in soybean products adversely affected overall soybean prices that day.

What’s eating the fertilizer business?

We should remember that any drop in soybean prices adversely affects farm incomes, which negatively influences the fertilizer businesses. For this reason, CF Industries Holding (CF), Enterprise Products Partners (EPD), Martin Midstream Partners (MMLP), and CVR Partner LP (UAN) plunged by 3.4%, 5.7%, 9.3%, and 10.2%, respectively, on January 20, 2016. Notably, the Material Select Sector SPDR ETF (XLB) dropped by 1.9% on the same day.

Now let’s look at the larger trend in soybean prices as of January 20.

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