Soybeans are a crucial commodity in the global grain trade, especially between the U.S. and China. For financial traders, soybean futures contracts are highly favored. Therefore, understanding the factors that can influence soybean prices is essential for making accurate investment decisions.

Soybeans are a protein-rich food, with production concentrated in American countries like the U.S., Brazil, and Argentina, used for both human and animal consumption. Soybeans are primarily used to produce soybean meal and soybean oil, which are key ingredients in animal feed production.

Soybeans used in animal feed are mainly genetically modified, while non-GMO soybeans are used for human food consumption.

1. Weather

   
   
   
   

   Weather has a significant impact on crop yields and agricultural production in general. During the growing season, adverse weather conditions, even short-term extreme events, can negatively affect soybean production. Additionally, weather also influences the delivery process and the logistics of bringing crops to market. For example, heavy rains in northern and midwestern Brazil (where much of the world’s crops are grown) can make fieldwork more difficult, slow down planting, and ultimately reduce soybean yields. Meanwhile, unfavorable weather conditions in southern Brazil, a key region for international market deliveries, can impact the global supply of soybeans, with delays leading to increased losses and reduced availability.

   
   
   
   

2. Protein Demand

   
   
   
   

   China and other Asian markets play a critical role in the key drivers of soybean consumption, with these regions experiencing a boom in meat demand (beef, pork, and poultry being significant). Soybean meal (a byproduct of soybeans) is the most important protein source used in feeding livestock and poultry, accounting for about two-thirds of the world's total protein feed production.

   
   
   
   

3. China’s Demand

   
   
   
   

   China imports about 60% of the global soybean import market, accounting for 90% of the world's demand. China's meat production increased by 250% from 1986 to 2012. However, China cannot fully supply its own feed needs and therefore must import additional soybeans from the U.S. and Brazil.

   
   
   
   

4. USD

   
   
   
   

   Like most internationally traded commodities, soybeans are priced in U.S. dollars. Fundamentally, a decline in the USD's value relative to the currency of commodity buyers means that buyers will spend less to purchase commodities. When a commodity becomes cheaper, demand increases, leading to higher prices, and vice versa. Producers should not increase production when the USD is weaker. For example, a depreciation of the U.S. dollar against the Brazilian real can reduce profit margins for soybean farmers in Brazil. Farmers' revenue is in USD, but costs are in Brazilian reals, so a weaker USD against the real impacts producers' profits. Thus, lower profit margin prospects can contribute to a reduced soybean supply.

   
   
   
   

5. Tariffs

   
   
   
   

   Soybeans are one of the most important food sources and can become a key factor in government trade policies with other countries. For example, in 2018, China announced that it would increase tariffs on U.S. soybean imports. This change increased soybean prices in China but decreased them in the U.S.

   
   
   
   

6. Prices of Other Crops

   
   
   
   

   Corn and soybeans compete in many areas, such as in the edible oil industry, animal feed industry, and biofuel industry. Therefore, corn production will affect soybeans and vice versa. Generally, if corn production decreases, soybean prices are expected to rise.

   
   
   
   

7. Inventory Levels

   
   
   
   

   Inventories act as a buffer for both producers and consumers of soybeans. Typically, a decrease in inventories due to demand growing faster than supply results in higher soybean prices. Additionally, lower inventories can make the soybean market more vulnerable to unforeseen supply disruptions or sudden spikes in demand.

   
   
   
   

8. Speculation

   
   
   
   

   Hedge funds operating in the agricultural market, including soybeans, can cause prices to fluctuate more rapidly than other factors when a market deficit or surplus appears. Speculators play a vital role in signaling to farmers how much they should plant while also allowing for risk transfer.

   
   
   
   

9. Energy Costs

   
   
   
   

   Higher energy costs lead to higher soybean production and transportation costs. Energy accounts for a significant portion of operating costs for most crops. This is especially true when considering indirect energy costs for fertilizers, as fertilizer production requires a substantial amount of natural gas.

   
   
   
   

10. Speculation by Funds

    
    
    
    

    In the short term, at least, the positions held by large commodity funds can significantly impact soybean prices. If futures market positions are overbought or oversold, as in other commodity markets, news against this view can cause substantial price swings in the market.

Source: Materials-risk