Soybeans: A Commodity Asset for Long-Term Peace of Mind

Soybeans have always been among the major agricultural commodities traded on the market. In recent years, the price of the commodity experienced notable rises. While the prices have now pulled back from their historical highs, soybeans still have a lot of potential from a commodity trader’s perspective. In this article, we take a look at the recent price developments for soybeans, consider their major price drivers, cover their outlook, and provide some guidance on possible investment options.

Soybean Price Developments in Recent Years

Back in early 2014, after experiencing multi-year gains, soybean prices crashed from nearly $1500 to below $1000 due to a combination of several factors at the time. These included an oversupply in the market, increased rainfalls in Argentina that affected the crops, and persistent rumours that China was switching some of its soybean imports from the US to South America.

After that major crash, soybean prices remained below $1000 for several years in a remarkably sideways pattern, with occasional fluctuations but no significant trends. This continued until August 2020, when prices began to rise rapidly. From August 2020 to early 2022, soybean prices rose from around $900 to over $1750 in January 2022. Contributing factors during this time were poor weather conditions in South America and the US Midwest, increased demand from China, and rising biofuel demand.

During this prolonged general rise, prices did ease somewhat between mid-2021 and November 2021 but then resumed their growth.

From early 2022 on, the war in Ukraine also proved to be a contributing factor to the price increases. By mid-2022, soybean prices had reached historical highs of over $1750.

However, from June to October 2022, prices retracted to around $1400. Since then, soybean prices have seen a modest uptick and are currently trading around $1500. While off their 2022 record highs, they still remain relatively high by historical standards.

Are Soybean Prices Seasonal?

Seasonality, a major factor that is supposed to affect many agricultural crops, including soybeans, hasn’t been a significant factor for the prices of the commodity in recent years. In principle, soybean prices are supposed to decline between August/September and February due to the harvest season. However, the supposed seasonality hasn’t played a role in driving soybean prices in recent years.

From 2014, and particularly from 2018, to mid-2020, the soybean market was decisively sideways, with seasonality playing a minor role. In late 2020, the prices surged, with no seasonal decline in presence whatsoever. As we noted above, poor harvests in the major soybean producing regions (South America and the US mid-West), Chinese demand, and rising biofuel demand all ganged up to ignite the prices of the commodity.

In 2021 and 2022, the price dynamics also was not in line with the expected seasonal changes. As such, seasonality has so far played a limited or no role in the soybean market, at least in the last few years.

What Is the Outlook for Soybeans and Should You Invest in Them?

The short-term forecasts for soybean prices point to either a sideways market or a very modest upward trend. Soybean supply is unlikely to grow appreciably due to the expected further weather instability affecting the crops. The demand from China is also expected to stay strong, further supporting the price.

Moreover, although seasonality hasn’t played a significant role in the soybean price for the last few years, it might provide further support to the price until late summer on this occasion.

Thus, soybeans in the near-term are expected to have several factors supporting either a sideways move or modest growth. A downward shift is relatively unlikely.

While the price dynamics is expected to be very subdued in the short-term, in the long term, soybeans are largely forecast to experience healthy price growth. All the key factors supporting the commodity in the short term – demand from China, the needs of the biofuel industry, and climate change negatively affecting the major producing regions - are highly likely to persist. This points to slow but steady growth for the soybean prices in the long term.

Soybeans are probably not the best choice for commodity traders whose investment plans are of a short-term nature and who would like to target high-growth assets. On the other hand, soybeans might be a great asset for long-term oriented investors who prefer a steadily, even if not strongly, growing asset. In comparison to many other agricultural commodities, soybeans can be a relatively safe long-term bet.