One could argue that soybean prices are shifting to a new plateau. Worldwide demand, primarily China, has driven prices to levels few of us anticipated as recently as this past summer. Just where this new plateau levels off is yet to be seen.

As the charts show, the driving force in soybeans – as in the entire worldwide oilseed market – has been China. Its production capabilities are limited, as the graph clearly illustrates, with production flat for the last 10 years. Its consumption, however, is going off the top end of the charts.

Due to shipping and processing restraints, it’s doubtful that this level of growth can continue. But you can be confident that its consumption will not drop – and will keep going up at least by some significant level. Once you start feeding a hungry population you cannot take the food away. This will likely be a growth market for years to come.

It’s always concerning, no matter what the product, if one buyer makes up the majority of your sales. As the pie diagram shows, China now accounts for 60% of the world soybean imports. That’s a scary thought that so much goes to one customer. What happens to the market if that customer has a change in political venue and decides to slow down or stop purchases? I’m not saying that is going to happen, but merely pointing out the potential risk in being tied in with one buyer at this level.

In the corn market, we have many buyers. No country dominates corn purchases by more than 20%. It would be safer if soybeans were in the same category.

With all of that said, what can we anticipate in this market? In the 1990s, soybeans had a relatively wide range, from the low of $4 up to $9. Starting in 2003, the price range shifted from $5 to $10.50. Then from 2007 to 2009, soybean prices catapulted to $16 briefly, but for all practical purposes, the range fell into a floor of $8 and a ceiling of $15.

The new plateau now appears to be in a narrower range than the last one. In all likelihood, $9 should be the new floor and $14-15 the new highs.

A note of caution

We must always remember that while soybean growers want high prices, buyers want low prices. There has to be a buyer to make the market work. Demand for soybeans at $13 is not going to be as good as it is at $8. Keep any commodity price too high for too long and someone will find a way to grow more of it or to use less of it. A good thing for soybeans: both of those changes may take a long time to happen.

Due to shipping and processing restraints, it’s doubtful that this level of growth can continue. This will likely be a growth market for years to come. 

January 2011