Large stocks and lower demand for Soybeans

Large stocks and lower demand for Soybeans

04 December 2019 from Anna Svahn

US Soybeans have been in blustery weather for the past two years because of the US-China trade war. Generally, the price of agricultural commodities is squeezed and US Soybeans are not an exception, however, the question is whether it is now possible to include the raw material in the portfolio, or if it may be worth the wait.

Since 2012, the price of US Soybeans has fallen by over 40 percent, and the trade war between China and the US with associated tariffs on the commodity has not directly had any positive effects on the price in the short term.



Time and time again, we have been promised a solution, or at least been told that President Xi and President Trump are close to an agreement, to later see more increases in tariffs on each other. Our next hope is instead until December, when part of an agreement is expected, which could lead to a short-term relief rally for soybeans.

However, the fundamental problems for the raw material remain. As with all other commodities, the price is controlled by supply and demand, and in addition to the trade war, the fact that swine flu from North Africa knocked out a third of China's pig population has played a major role in demand. China is the world's largest importer and consumer of soybeans, mainly used to feed animals. 

With the swine flu and the trade war hand in hand, American farmers have had to cast their eyes on alternative markets so that stocks do not grow even more. However, the effort has not led to more than exports to Bangladesh, Pakistan and India, which in fact is about a tenth as much as China usually buys. As a result, soybean stocks in the US have almost doubled over the past year, from 438 million tonnes to just over 1 billion tonnes. For the initiate, it is understood that this is not particularly good for the price of soybeans in the short, medium or long term.

For those who want to speculate in the short term, however, there may be a reason to look at the effects a partial solution of the trade war in December could have. But for those looking for value-based investments, both stocks and demand speak to the price in the longer term than a few months would turn.

Instead, the situation for soybeans comes later, when stocks decline and the pig population grows again, and preferably in combination with the world's two largest economies having stopped raising tariffs on goods traded among themselves. Until then, one can instead follow the development from a distance and wait for better times than today. 

 @Anna Svahn

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01/03/2021 18:19:39

 

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