Are $18 Soybeans Possible? Here's Why Prices Could Shatter All-Time Highs

Brazil slashed its soybean forecast this week, while China's hunger for U.S. soybeans seems to be growing. And it led to soybean prices continuing to surge higher this week. 

“The big driver is the drastic cuts to the South American production estimates,” says Joe Vaclavik of Standard Grain. “Brazil, in particular, Brazil's government, CONAB, slashed their production estimate on Thursday morning, well below what USDA projected on Wednesday morning. So that led to a big rally, multi-year highs in the market with really strong action.”

Where's Brazil's Beans? 

Vaclavik says as the crop production estimate in Brazil gets slashed, it’s producing a completely different production picture compared to just two months prior.

“You're talking a difference of a billion bushels when you combine Brazil, Argentina, Paraguay and Uruguay,” he says. “So, I think the question moving forward is, you know, how much of that export business which is going to be lost? How much of it, if any of it, comes to the United States?”

Historic Cuts 

Dan Basse, of AgResource Company, just returned from a trip to South America where his offices are located. He says during his recent crop tour, a boots-on-the-ground look at the crop made it apparent Brazil’s crop was stressed by weather.

“We did a big crop toward the end of January, and we came out with a crop of 125.9 [million tons], and the industry kind of looked at it sideways at that point, thinking we were too low. But we were just seeing tremendous losses,” says Basse.

Basse says his crop tour produced similar results as CONAB’s recent estimate, which means a balance sheet that’s potentially tighter than what the market has been trading.  

“I think the market is coming along to this thought of what Joe said, that we've lost a billion to 1.2-billion bushels of soybeans in Brazil. It's a record, and nothing historically comes close to the amount of loss we are seeing this year,” says Basse.

USDA trimmed its South American forecast in the WASDE report this week. Highlights include: 

• Brazil’s soybean crop is 134 million tons, down 5 million from January.
• Argentina’s soybean crop is 54 million tons, 1.5 million lower from January.
• Paraguay’s soybean crop is 6.3 million tons, down 2.2 million from January.

“They're acknowledging the cuts to some extent, but the one thing is USDA left their export projection for soybeans out of the United States unchanged for the current marketing year in Brazil,” says Vaclavik. “USDA cut their export projection for Brazil by 10 million metric tons. There's a lot of export demand that is not going to be fulfilled by South America. Does that demand disappear? Or does it come to the United States? I think that's a big question.”

BREAKING: From USDA: Private exporters reported sales of 299,700 MT of soybeans received during the reporting period for delivery to unknown destinations. pic.twitter.com/W84WlYnb0s — AgDay TV (@AgDayTV) February 10, 2022

Shift in Demand

USDA reported daily new crop sales to China this week, as it seems demand is already shifting to the U.S.

“If we go back in history and start to look at the relationships of when Brazil or South America adds or subtracts crop, it's almost a one-to-one relationship. It's 0.9 in beans. So we expect that demand to come to the United States, both in an old and new proposition,” says Basse. “What USDA hasn't shown us yet is that new crop balance sheet which may show more of the increase. But you know, there's no way that our balance sheets can accommodate a billion bushels of extra crush exports. It just can't happen, or we're going to need an exponential increase in soybean acres this year. So that's the theme.”

So, what price do soybeans need to climb to in order to ration demand? Basse says it may be close to $18, but he's not ruling out the fact prices could climb even higher than that.

"What price does it take? Our modeling would say it's something near the all-time highs, which is $17.95 a bushel. But I can't even rule out even higher highs than that should Brazil's losses be more or the Chinese keep coming [to buy soybeans]," says Basse.