Heavy Exports Weighing Down Soybeans

CBOT:ZSN2023   Soybean Futures (Jul 2023)
Soybean is among the world’s most traded crop. It is used in various industries. Soybean drives global food prices. It can tilt trade balances of an entire nation.

This paper describes the importance of Soybean. It lists key producers, consumer and maps the harvesting cycle across the calendar by top producing countries.

Given rising Brazilian exports, higher US planting, and asset manager’s positioning, this paper articulates a case study for a short position in CME Soybeans Futures delivering a 1.3x reward to risk with entry at USc 1,452.5/bushel and target of USc 1,350/bushel hedged by a stop at USc 1,530/bushel.


Soybean is high in protein. Hence, it is a key component of livestock feed for meat & dairy production. Rising consumption of the latter two continues to push Soybeans demand.

Two-thirds of Soybean is used for crushing into oil and meal. Soybean oil is among the most widely used vegetable oils. It is also used as biodiesel.

The two American continents form 80% of global production. Brazil (42%) and the US (31%) are the two largest producers of Soybeans. Argentina is a distant third (7%).

China drives demand. It is the largest importer of Soybeans. It comprises 60% of global imports. Soybeans is
used to feed China’s massive livestock.

Soybean prices are cyclical and prone to price shocks.


Prices vary through the year. It is lowest at harvest. Increases during the year with rising inventory holding costs.

Harvest seasons are spread differently across North & South America. US harvest is from September to November. While the Brazil & Argentina harvest from March until June.

Not surprisingly, Brazilian and US harvest has an enormous impact on Soybean prices. Actual production deviating from expectations in these two majors can send prices surging or tumbling.

Soybean prices since 2015 is visualised below. Prices have structurally moved up. Prices have surged driven by robust demand since 2020.

Soybean prices on average have ranged 14% from its lowest to the highest over the last eight years with large price gyrations in 2016 and 2020.

Price behaviour during and post-harvest since 2015 is visually described in the heatmap below. All things being equal, Soybean prices trend lower during harvesting followed by price recovery post-harvest.

However, each year presents idiosyncratic conditions related to weather, trade policy, yield and output, causing price fluctuation.

Beyond the harvest cycle, climate has a significant impact. North and South America is heavily affected by El Niño-Southern Oscillation which is a natural climate pattern causing hotter/dryer climate every three to seven years. El- Niño also elevates the chances of droughts and floods.

Demand for Soybean Oil is also impacted by supply and demand of other vegetable oils like Palm Oil due to substitution effect.

Global trade policy has a considerable influence too. Trade restrictions can disrupt global supply-demand balance, resulting in increased volatility.


USA: In its recent Market Outlook, the USDA reported that US farmers were planning to plant marginally higher than last year but below market expectations. As per National Oilseed Processors Association (NOPA), soybean crushing spiked to a 15-month high and the second highest level for any month on record in March. The crushing pace jumped as processors bounce back from maintenance related downtime.

Brazil: Soybean exports from Brazil surged 42.5% YoY during the first half of April. Bean prices have trended lower on larger than expected supply.

Argentina: USDA reduced its forecast of Argentina’s soybean crop to twenty-seven million metric tons down from thirty-three million metric tons last month.

Argentina’s soybean yields sunk to historical lows last week as per Buenos Aires Grains Exchange’s (BAGE) weekly report. BAGE warned that its projection, currently at twenty-five million metric tons, could be reduced if yield remains suppressed.


Two-thirds of soybean crop is crushed into oil and meal. The crush spread, also sometimes referred to as simply the crush, refers to the difference between the value of soybean meal and oil and the price of soybeans. The “crush” is gross processing margin from crushing soybeans.

As such, these three products are deeply intertwined.

Asset managers have reduced net longs in all three contracts since the start of 2023. Intriguingly, asset managers have reduced net longs much more sharply for Oil and Meal relative to Soybeans.


Four key drivers at play. First, rising supply from Brazil. Second, higher planting by US farmers. Third, bearish asset manager positioning. Finally, first three offset by marginal impact of lower yields in Argentina.

In forming a holistic view, this paper posits a short position in CME Soybeans July contract. Each lot provides exposure to 5,000 bushels (~136 tons).

Prices are quoted in U.S. cents per bushel. Minimum price fluctuation (tick) is one-fourth of one-cent. Therefore, every tick represents a change of USD 12.50 per lot.

● Entry: USc 1,452.5
● Target: USc 1,350
● Stop: USc 1,530
● Profit at target: USD 5,125
● Loss at stop: USD 3,875
● Reward-to-risk: 1.3x

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