Soybean Futures Briefly Dropped on Surprising Production Drop Reported by USDA

Many grains and other agricultural products remain in the elevated volatility mode as crop and harvest worries, along with well-covered “supply bottlenecks” (transportation disruptions due to limited workforce, available vessels, as well as Covid quarantine restrictions) keep agricultural traders under pressure. After the recent oats futures price spike to ~$770 per 5,000 bushels followed by their retreat to around $412/5K bushels, new similar stories emerged.

Now, these are the Soybean futures that surged recently after the U.S. Department of Agriculture cut its estimate for domestic yields, surprising traders who were expecting an increase. Back in October, Chicago soybean futures touched the lowest level in nearly a year following a previous U.S. Department of Agriculture (USDA) report that, contrary to the recent data, showed larger than expected yields of soybeans and corn. On top of that, Reuters reported earlier this week that, “China’s soybean imports in October fell 41.2% from a year earlier, hitting the lowest level since March 2020 [...] as poor crush margins curbed demand and Hurricane Ida limited U.S. shipments”.

In this monthly WASDE report, the USDA forecast soybean production at 4.425 billion bushels on a yield of 51.2 bushels per acre, actually below consensus estimates and down from the USDA's October forecast for a 4.448 billion bushel crop with a yield of 51.5 billion bushels.

The reduced yield forecast took traders by surprise in the wake of the report publication. Nevertheless, after the initial precipitous decline, CBOT soybeans (S_1:COM) for January delivery closed +2% to $12.12 a bushel. So what is the real story here then?

Going forward, an early start to soybean planting in Brazil will likely balance the prices of soybean futures in the coming weeks. The USDA expects Brazil to grow a record 144 million tons in 2022 and the early start means some soybeans may be available as soon as January, compensating for the likely U.S. export shortfall. While South American growing conditions are currently favorable, the return of a La Niña weather pattern could bring hot and dry weather to Argentina and southern Brazil in the December to February growing period.

The major takeaway from this story is that the current agricultural commodities supply imbalances magnify outcomes from the news concerning the expectations/facts of the plantings/crops, thereby making an analyst job in relevant price prediction nearly a mission impossible.