1. It’s all about the meal

Nearby soybeans on Wednesday jumped to their highest close since September 2014. A rally of almost $2.50 is nothing to sneeze at. But it’s modest compared to the booming in soybean meal, which is up more than 50%, with most of those gains coming in little more than a month.

2. More beans, less meal

A record crop in 2015 doesn’t mean more meal. Production is actually expected to fall because the beans are producing more oil and less protein. Plus, crushers cut back output after a strong start in September and October. Member of the National Oilseed Processors Association took in fewer soybeans over the fall and winter, despite rising poultry and pork production.

Hot soybean meal market was driving force behind the soybean price surge. (Photo: yelena yemchuk/Thinkstock)

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3. Plants in the eastern Midwest are hurting

Crush is down 7% in Illinois and 2% in the rest of the eastern Midwest compared to year-to-date levels for the 2014 crop. Only slight gains were noted in Iowa and other states to the southwest. This is where the bulk of delivery points against Chicago futures are located, so some of the product is out of position. Short-bought end users are going after nearby meal futures aggressively trying to cover their needs in the cash market, a job complicated when a plant in Indiana shut this week unexpectedly for maintenance.

4. Margins explode

The big rally in meal took crush margins to their highest level in almost two years. Soybean meal accounted for the bulk of the value of a soybean – good news for farmers because the strongest rallies are driven by meal.

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5. But not for oil

Soybean oil was hot earlier in the year on fears El Nino was cutting palm oil production. But oil’s share of processing margins plummeted.

6. Floods wash out Argentina’s crop

Heavy rains just as farmers starting harvest in Argentina cut production, perhaps by more than 10%. Adverse weather also trimmed what’s still a big crop in Brazil.  Uncertainty over supplies may be driving some business back to the U.S. at time when demand normally slows.

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7. Meal exports rebound.

Exports of soybean meal crushed from the 2014 soybean crop hit a record, in part because Argentine farmers horded supplies amid political and economy chaos in Argentina. Election of a new business-friendly president convinced farmers to sell, hurting early season soybean meal exports out of the U.S. But sales started to pick up again due to uncertain availability out of Argentina.

8. Soybean exports improve too

Soybean sales look like they should wind up better than early forecasts, though overall business is down from levels seen a year ago. The good news is a farily large inventory of unshipped sales already on the books – the best in three years. Sometimes buyers cancel these purchases, but that looks less likely now.

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9. Thanks, crude oil

The connection between soybeans and crude oil is less than obvious. Biodiesel doesn’t drive the market, but money flow from big speculators does. Hedge funds started the latest surge in commodities with buys in crude oil that spilled over to soybeans. That’s keeping the correlation between soybeans and  crude oil very strong.

10. Money talks

Big speculators went from a record net bearish bet in soybeans to a big wager on rising prices. And they’ve done the same with soybean meal.  Now the question is where do prices go from here? Nearby soybean meal futures Wednesday hit the 50% retracement of their selloff from 2012’s all-time highs. That doesn’t mean the market can’t go higher, but it may take a weather scare for the final push.