There’s a fine line between excess and shortage in the commodity markets, and the real purchase of price is to keep everything in balance. Two weeks ago, the world’s soybean prices had found equilibrium between the expectedly large size of the upcoming South American harvest balanced off against the soil moisture conditions in the central United States. Then as a major weather event brought snow and rain to much of North America and the combines began to roll in Brazil, the soybean futures have tumbled in the same fashion as a teeter-totter would if a kid jumped off the one end and his playmate crashed to the ground on the other. Both of the market making forces are still in play, (harvest in the southern hemisphere and solid moisture in the northern hemisphere), but with different degrees of urgency right now.
Even a small amount of precipitation takes the market’s attention off the subject of drought, so although the USDA’s Drought Monitor Index has not improved substantially in the past two weeks, last weekend’s active weather coupled with a few weather models which suggest that we could have slightly more spring precipitation, (and I’m still a cynic with regards to weather forecasters), and the market has at least temporarily stopped talking about soil moisture.
The real news which is weighting heavily on the soybean market right now is the start of the South American harvest. The graphic below is an aerial shot of the Brazilian port of Paranagua, showing 100 vessels waiting in line to enter the harbor and load grain. The graphic in the corner of the photo lists the number of vessels arriving and departing the port each week. It is impossible to calculate from the photo, but it is entirely likely that there is enough vessel capacity in the picture below to haul away the entire Canadian soybean crop in one trip.
It is irrational to imagine a scenario where soybeans are scarce with this degree of export activity in just one port. Obviously, the market is liquid at these price levels or else there would be no need for the ships to be employed. This will be the world soybean market’s reality for the next six to eight weeks.
As ominous as all of this looks, all is not lost. Even with the massive South American soybean crop now being harvested our values remain in the top 10% of the past decade’s values for Ontario soybeans. To be certain, we are now off the market’s highs, but we are still a long way from the bottom. It’s a little irresponsible to think that we are going to test last summer’s highs any time soon, but as long as North American planting intentions and soil moisture conditions continue to play on the market’s mind, values will have some support under them.