The Rally of US Soybeans Futures Is Too Good to Be Ignored

Jan 23, 2021 05:40 AM ET
The Rally of US Soybeans Futures Is Too Good to Be Ignored
  • The futures have risen more than 62% since May 2020, with the current 8-year high poised to continue.
  • The Teucrium Soybean (SOYB) ETF has rallied consecutively with the price increase of soybean futures.
  • The increased demand from the human and pig population in China has heightened the demand for soybeans. The country is recovering from a severe swine flu case that wiped out almost 40% of the pig population in 2018.

US Soybeans Futures have hit a significant eight-year high of $1,363.18 as of January 5, 2021. The futures were at an all-time high of $1,754.37 in August 2012. The price is $400 per bushel short of reaching this settlement.  It also stands higher than the 52-week high of $1,349.38. Prices have been soaring throughout 2020 as the market reacted positively to surging Chinese demand for the oilseed. There has also been high protein demand due to stay-at-home measures. The weak dollar has also increased commodity prices by favoring exports into other countries.

  US Soybeans Futures  

The best investment vehicle to invest in soybeans futures is Teucrium Soybean (SOYB). The ETF rose by more than 53% in the 52-week range analysis. It has a direct correlation with the price of soybean futures. It is also trading at $20.24, representing a 3.34% increase from the reading on January 4, 2021.

Demand momentum

Chinese demand for soybeans has risen exponentially since the declaration of the COVID-19 pandemic. The oilseeds are not only needed for human consumption but poultry and pork herds. The market assessment also shows that the chief driver of up to 30% YoY increase in soy globally is the soaring Chinese demand. As of January 5, 2021, the range of demand was $10 to $14. Up to 60% of the world’s soybeans go to China. Forecasts from the US Agriculture Department indicate that the Chinese demand for the commodity for the fiscal year 2020/2021 will reach a record high of 100 million metric tons.

Chinese demand for soybeans

Pig and poultry feed demand

Towards the end of 2020, approximately 90% of China’s pig population had recovered from the swine flu. Full recovery is expected in the first quarter of 2021. The fever had shrunk the pig herd by more than 40% in August 2018. Chinese pigs use soy feeds, and the demand is expected to increase to cater to the massive shortage. The Chinese government amalgamated small-scale pig farms into big units raising inventories. In November 2020, stocks of hogs rose by 29.8% YoY.

Soybean futures from Chicago also began 2021 on a strong bullish tone, the highest since 2014. Agricultural supplies from South America have tightened in tandem with strong Chinese demand.

Low supply pattern from South America

South America faced a series of inadequate rainfalls in the soybean producing areas of Brazil and Argentina. Low supply from these two regions will force China to look to the US for supply. This situation is expected to increase the commodity price in 2021. Soybeans need adequate soil moisture to support growth. At the moment, moisture levels in Brazil are below average.

Weak dollar against the Chinese yuan

CNY/USD (Chinese to US Dollar currency) pair chart

 

The CNY/USD (Chinese to US Dollar currency) pair is now on a bullish run, the best since 2018. On January 5, 2021, the pair traded at 0.1549 in favor of the Chinese Yuan against the dollar. The Yuan had gained 1.16% in the past month, 8.40% in half-year performance (from 2020), and 6.37% in the past year. China's quick response to the COVID-19 pandemic has strengthened its currency against the dollar. This situation means that US exports to China in the FY 2020/2021 are relatively inexpensive compared to the previous years.


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