Forecast uncertainties in the soy market

The outlook for soybeans for 2023 is one of growth, with an expected increase in acreage used, according to estimates by the World Bank. Combined acreage of corn, wheat and soy is projected at nearly 3 percent higher than 2022. Prices are expected to fall relative to 2022 but remain high compared to the historical average. There are however uncertainties in the market which could drive up prices.

Continued forecast of la Niña weather conditions could cause drought and bad harvests in the USA. The US produces 34 percent of the global output of soybean. There have also been historically low export levels of soybeans from the US due to prices there being above the world market. This is because demand is driven up by the biofuel industry, which uses soy oil. Competition in the biofuel industry is expected to increase and be a key driver of soybean prices in the US. Meanwhile, China, the biggest consumer of soy, has low reserves and need restocking, according to S&P Global. Demand from China could drive up the price of soy unless their economy closes again due to Covid-19. China imports 60 percent of their soy and are trying to reduce this by increasing their own production and reducing soymeal ratio in feed

formulations. This is however expected to take many years to have a real effect on their demand. 

In the war between Russia and Ukraine, the Black Sea deal is also a source of great volatility in food markets. Russia extended the deal to allow Ukrainian exports of grain for another 60 days, while the deal initially was for 120 days. Ukraine is a significant producer of soybeans, and the price of soybean is also related to other grains such as corn and wheat, as these crops are often used as substitutes for each other in animal feed and food products. The Black Sea deal has lead to the export of 24 million tons of Ukrainian produce so far.

 

Vessels part of the Black Sea deal waiting to pass the Bosphorus strait (photo: Reuters)