• The dollar, crude oil prices, and market supply constraints all strongly favor soybean prices.
  • Chinese demand remains a key driving force.
  • Shortage fears may have influenced the stockpiling.

Soybean prices continue to soar as key drivers combined to favor the crop’s performance in the global market. The March futures of the commodity closed the market at 1,355.00, and it will likely rise further for the next few weeks.

The commodity is currently riding on a weaker US dollar, record purchase by China, South American supply fears, and rising crude oil prices.

Weak US dollar

The devaluation of the dollar started in March 2020 as the Federal Reserve lowered interest rates and launched a quantitative easing. So far, the bank’s balance sheet has soared to a record $7 trillion, and there’s a possibility that it will hit $10 trillion this year. These measures tend to be negative for the currency.

The currency also weakened due to the record stimulus offered by congress. In 2020, the government offered more than $3 trillion in the stimulus. The situation will accelerate now that Democrats will control the Senate, House of Representatives, and the presidency. They have already hinted that they will boost stimulus by at least $2 trillion.

A weaker dollar will give foreign buyers more purchasing power, translating to increased demand and higher soybean prices.  The chart below shows the recent deterioration of the US dollar.

US Dollar Index (DXY) chart

Record purchase by China

China is the world’s largest importer of soybean. The China-America trade deal saw China import a record $4.8 billion worth of US agricultural and seafood products. Soybean purchases accounted for the bulk of the figure, amounting to $3.5 billion.

The record purchase by Chinese buyers swept up a large portion of the supply, thereby driving soybean prices higher.    

South American supply fears

Brazil, Argentina, and Paraguay collectively account for about 55% of total global export. Brazil alone takes up 47% of the global exports. South America has experienced unsuitable weather this season in the form of a prolonged drought.

After the drought, farm yields are expected to decline significantly, resulting in limited supplies in the market.  Already, Aprosoja, an association of Brazilian farmers, estimates that soybean production will reduce by 2 million tonnes.

Argentine supplies are also expected to feel the effect of the just-ended 20-day strike by grain port workers, which grossly affected shipment.

Dwindling supplies from South America is welcome news for US soybean prices, as China is expected to shift to the US market.

Rising crude oil prices

Crude oil is an important factor of production in the soybean market. It is used to power farm equipment and in the transportation of produce to markets. Brent crude has climbed above $54 while West Texas Intermediate (WTI) is above 51$.

Over the past week, American Petroleum Institute (API) reported a decline of 1.27 million barrels in its inventories, while Saudi Arabia announced that it would cut production by 1 million barrels per day from next month.

These two factors have combined with the US stimulus plan to drive crude oil prices higher. In the coming days, higher crude oil prices will increase the cost of transportation of soybean to the markets, which could further increase soybean prices.

Technical analysis

The daily chart shows that soybeans price has been on a strong upward trend. It remains above the 50-day and 100-day moving averages, which is a sign that bulls are in control. Also, the Relative Strength Index has continued rising and is currently at 80, which is the overbought level. 

Therefore, the momentum will possibly continue in the near term. However, there is also a possibility of a pullback happening as investors take profit.

Soy Future chart