POINTERS: US Soybean & Soy Complex Situation and Outlook Report 2016

By: Ms. Sue Goll

Sue Goll is an agricultural consultant with over 25 years of experience as a cash grain merchandiser and futures industry participant. She worked at A.E. Staley for over six years as a grain merchandiser, trading soybeans, soymeal and corn out of the Des Moines, Iowa soybean processing plant, and the Lafayette, Indiana wet milling corn plant. As Grain Division Manager in Lafayette, Indiana, Ms. Goll oversaw grain merchandising, basis trading, truck and rail logistics, contracting with specialty corn growers and originated corn for two wet milling plants. She also managed offsetting hedge and spread strategies for the Lafayette futures position. Ms. Goll spent the next two years as a farm market advisor for a farm advisory firm assisting producers in cost of production analysis, grain storage management, marketing their crops using cash contracts, as well as, hedging with futures and options contracts. She joined the Chicago Board of Trade in 1989. During her six years with the exchange, she traveled worldwide teaching the use of agricultural futures and options markets. Ms. Goll travelled extensively to SE Asia, as well as Europe, working with producers and commercial businesses as they learned to apply futures and options markets to their cash market activities. Additionally, she specialized in the writings of educational materials and authored booklets for the commercial hedger, her primary focas being the practical use and application of futures and options markets. Her first hand knowledge and use of this complex subject matter and ability to simplify for practical application is what has made her work sought-after around the world. Also while with the Chicago Board of Trade, Ms. Goll worked in product development and marketing, speaking to agricultural businesses and diplomats worldwide on the benefits of futures and options markets. She designed extensive marketing campaigns for various products as well. Sue Goll has been self-employed as a consultant since 1995. In this capacity, she works with domestic and foreign businesses teaching cash/physical market fundamentals, the practical use of futures and options, and writing technical materials for publication. Ms. Goll has worked with clients in multiple countries including SE. Asia, Asia, S. Africa, Europe, S. America and the United States. Over her career, Ms. Goll has been a member of various Grain and Feed organizations and the National Grain and Feed Association. Goll is a graduate in Agricultural Economics from The Ohio State University. She graduated with honors, was a member of Towers Honorary and Sigma Alfa professional agricultural sorority.

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In recent months, the soy market has been one of volatility, sometimes for obvious reasons and sometimes not. Logically, the reduced 2015/16 crop out of Brazil & Argentina has added value to soybeans. It also makes sense that meteorological projections of a hot/dry US growing season has kept the market nervous.

Adding to the fire, the June 30, 2016 US planting report unexpectedly put US farmer soybean plantings lower than anticipated. There is an adequate old crop soybean supply around the world. With the reduced S. American crop, however, it is important that the US produce a large 2016 crop. If not, stocks could be drawn down to levels of just a few years ago--when we experienced significantly higher soybean prices.

A less obvious factor contributing to price volatility is investment fund activity. In recent months, investment money has been flowing into the commodities market. This is primarily due to poor returns on traditional investment tools, as well as weak economies worldwide. The flow of investment money into the commodities markets has resulted in large “long” fund positions in soybeans, keeping prices strong, even in old crop markets where we have no supply problem.

We will continue to gauge fund activity along with world economies and securities in an attempt to anticipate fund positions and the resulting influence on price.

Using a PowerPoint presentation of graphs & charts, this presentation will explore the current and historical supply & demand of the US and world soy complex. A verbal explanation will accompany each graph & chart.

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Questions & Answers (2) :

Sue Goll

8 years ago

The rising STU for wheat and corn is not the result of market preference for soybeans, but instead the result of an increase in the production of wheat and corn worldwide relative to the growth in demand for wheat and corn. In other words, growth in supply of these two commodities is growing more rapidly than growth in demand, especially for wheat. On the other hand, production growth in soybeans is struggling to keep pace with demand growth for soybean products. It is the market’s job to give the farmer a financial incentive to plant more soybeans, less corn and less wheat. Although at times we have seen the market send signals to the farmer to plant more beans, it has not been consistent. Wheat, corn and soybean meal compete in the feed market. Some corn by-products, such as corn meal, corn feed and DDG’s, also compete with soybeans in feed rations. The amount that that these commodities compete in feed rations is based on the particular animal and its nutritional needs. Corn and soybean oil also compete in the edible oils and biofuels industry. Both corn and wheat are used in the human consumption chain, but compete less so in human consumption. Probably the biggest factor affecting the tight supply of soybeans relative to demand (resulting in a lower STU) is the huge and growing demand from China. The world is simply struggling to keep pace with the demand growth for protein meal. There is a lesser issue with soybean oil as there are so many substitutable oils, especially for human consumption. We also see a growing protein and oil demand from India, a country soon to exceed China in population, as growing personal income leads to improved diets and changing food preferences. This too will keep demand for protein meals and edible oils strong. How might the tight socks-to-use of soybeans affect soybean oil demand relative to palm oil/other edible oils? There is no simple answer to the question. Much of it depends on price & geographical location of the end user. Obviously, it is less expensive to transport palm oil from its point of origin to India than to transport soybean oil from the U.S. or S. America to India. Transportation cost, the price of the oil as well as how it chemically fits into a recipe, all play a role in soybean oil versus palm and other edible oils. Taste preference is part of the equation as well.

LIM TECK CHAII

8 years ago

TQ for your presentation. Interestingly your analysis shows mega trend change in the Stock To Use (STU) ratios for wheat and corn. In your presentation, STU for wheat trends upward since 2007/08. For corn, it trends upward since 11/12. How does this development affects soybean demand and supply? In which market segment does soybean, wheat and corn compete in? Is this trend going to affect the future demand and supply of palm oil main competitors in the global oils and fats market, the soybean oil? What is your view.