Soybean market outlook
A difficult year for soybean producers
November 14, 2007 By Mike Bakker
It was a difficult year for soybean producers to gain value from the market
in 2006. A number of challenges have had an affect on the soybean market. Key
issues that have affected the farmgate value of soybeans included: appreciation
in the Canadian dollar, higher local yields, the impact of biodiesel as a new
demand source for vegetable oil, avian influenza and a world record carry-over
and supply from the past two years.
Key factors that are driving the Chicago Board of Trade (CBoT) market have
been the aggressive development of the renewable fuels industry in the US. With
a dramatic increase in ethanol capacity in the US along with the increase in
incentive programs, there has been a large increase in demand for corn over
the past few months with some of the positive strength spilling into the soybean
market. Along with the positive impact of ethanol production for the past few
months, there has been further development of the biodiesel industry in the
US. There have also been reports from CBoT analysts showing the recent strength
in the soybean market throughout the fall months of 2006 was affected by traders
'buying' acres of soybeans with strong prices to reduce the number of acres
that may be switched to corn next year.
The key factor causing a strong negative impact on the US market and one that
will likely continue is the record supply of soybeans. Record high supplies
have been slightly impacted by increased industrial usage. The size of the world
soybean supply demand is reflected in Table 1. The United States Department
of Agriculture anticipates an increase in ending stocks of soybeans even though
usage has increased. There has been a reduction in the possibility of a bird
flu outbreak that would decrease meal demand which, in turn, has not increased
the possibility of a further increase in carry-over.
|Table 1. World soybean supply and disposition.|
World soybean supply and disposition
(million metric tonnes)
Five year average
|Notes: 1) Source: USDA, 2) Ending stocks
is adjusted by imports less exports, 3) As of December 2006.
Locally in Ontario, the market over this past year was dominated by a dramatically
appreciating dollar. As the Canadian dollar has moved higher over the past couple
of years, it has decreased the value of the basis of soybeans for primary producers.
A key driver pushing the dollar higher has been continued higher prices in the
majority of commodities, excluding agricultural commodities. Leading into 2007
there has been conflicting reports predicting the direction of where the Canadian
dollar is going to head. A key factor for producers to watch over the next year
is the value of the currency and the impact on basis, which ultimately affects
the value paid to growers.
So what does this mean for 2007? The number of soybean acres planted in 2006
was slightly down within the province from 2.3 million acres to 2.1 million
acres. It is anticipated that soybean plantings in Ontario for 2007 will be
fairly consistent with 2006 or slightly higher with a lower than expected wheat
acreage planted. American analysts are reporting that soybean acreage in the
US is likely to decline, with estimates between 2.0 million and 8.0 million
Another key factor that will drive the market in 2007 is the South American
production during the winter months. Over the past few years, South American
production has been reduced from Asian soybean rust scares coupled with drought.
This has provided some pricing opportunities for growers during the summer months,
but a large crop in South America could dramatically increase the already record
high carry-over. 2007 key market factors will be further development of the
biodiesel industry in the US, crop conditions for soybean production in South
America and the size of the carry-over into next year. Locally, basis is going
to be a key factor for producers to watch in the coming year to maximize value
from the market place.
Mike Bakker is the government and issues relations manager for
the Ontario Soybean Growers.