The anticipated surplus of soybean supply for the 2023/24 growing season has had a direct impact on soybean oil prices. With increased production and reduced demand from key players like China, soybean oil prices have entered a bearish trend. The failed seasonal rally and the growing number of short positions in soybean oil further contribute to the current downward pressure. Traders will closely monitor weather conditions and adjust their strategies accordingly, as they play a vital role in potentially altering the market dynamics projected by the USDA.
The agricultural markets are experiencing the consequences of a commodity supercycle that peaked in June 2022. As the effects of high commodity prices unfold, one notable outcome is the anticipated surplus in soybean supply for the 2023/24 growing season. This surplus, driven by favourable weather conditions and increased production, is influencing the downward trajectory of soybean oil prices.
Increased Soybean Production:
The United States Department of Agriculture (USDA) projects a record-high soybean production of 4.5 billion bushels for the 2023/24 marketing year. This projection represents a significant increase of over 5% compared to the previous year, driven by higher yield and slightly expanded planted areas. Additionally, Brazil, the world's largest soybean producer, achieved a bumper crop, contributing to a 6% rise in South American soybean production for the 2022/23 crop season.
Impact on Soybean Oil:
Soybean oil, a by-product of soybeans, is facing downward pressure as the surplus in soybean supply weighs on prices. China, the largest soybean oil producer and a major consumer, is experiencing an economic slowdown, diminishing demand for global soybeans. The reduced demand from China, combined with the surplus supply, has contributed to the current bearish trend in soybean oil prices.
Seasonal Patterns and Commitment of Traders Report:
Traditionally, soybean oil exhibits a seasonal decline, with a peak in March followed by a downward trend. However, this year, the reliable seasonal rally failed to materialize, resulting in a consistent downtrend. The Commitment of Traders (COT) report reveals that managed money has increasingly added short positions in soybean oil, indicating a bearish sentiment among trend-following traders.
Future Considerations:
As traders look ahead, monitoring weather conditions during July and August becomes crucial, as they can significantly impact the USDA's production projections. Any unexpected weather patterns during these months could potentially counter the surplus supply and influence the soybean market.
inputs from / Branch,ourworldindata
