The varying costs of soybean products are a reflection of those uses. The majority of soybean oil used by individuals is either used in processed goods or as a home cooking ingredient. To add more protein to their diets that largely consist of corn, cattle are fed soybean meal. Since tallow, butter, and tropical oils have become less and less popular among food manufacturers, eateries, and home chefs, the need for soybean oil has constantly increased.
Two routinely published, monthly statistics reports on US soybean crush rates and US and global soybean meal supply and demand were released recently. These announcements coincided with the expiration of a nearby soybean meal future as discussed by the physical soybean broker. With a focus on soybean meal, the historical revenue and margin driver for the soybean processor, experts started thinking about the current state of the US and UK’s soybean business and the industry’s future as a result of the price action of the futures at expiration and a study of the monthly statistics. Here are my ideas.
The US soybean processing industry’s trade and policy organisation, the National Oilseeds Processing Association (NOPA), releases a monthly report on the state of the US soybean market. The data from July’s report for the month of June suggested that the industry was running as quickly and as hard as it could in response to the key economic signal, the soybean crush margin (which during June hovered around $3.25 per 60-pound bushel before operating costs so the gross margin). Keeping that sentence in mind will help you succeed. Even the casual observer will find a sharp rise at the highest level.
Even though processing capacity is limited and soybean meal costs are high, as seen by the expiration of soybean meal, consumption isn’t being discouraged, right? Yes, the demand for US soybean meal is increasing year over year, despite higher prices, which have just lately moderated thanks to the US Federal Reserve. This is according to the USDA’s World Agricultural Supply and Demand report (WASDE). Although production has climbed by 990k tonnes, demand has increased along with supply by 840k tonnes on the domestic market and by 60k tonnes less on the export market.
The futures price was likely discounted to the physical price, which can happen regularly along the forward futures curve, but not at expiration when convergence occurs, according to the rapid surge into expiration. How come? If the price of the futures is higher than the price of the physical market, soy processors will sell the futures and deliver the meal against the futures; if the price of the futures is lower than the price of the physical market, feed compounders will purchase the futures and hold onto them until delivery, sourcing their physical needs from the futures market.
Many of the US fleet’s older soybean processing plants have maintenance and ageing issues; in a different margin environment, management probably would have shut down operations for a major upgrade for a period of 12 to 18 months before bringing the plant back online, but not in this one; in this environment, the older plants run, hard. Railroads continue to perform poorly across the nation, which prevents some plants from operating at their maximum capacity due to equipment shortages, restricts the supply of soybeans, or clogs local rail yards with meal and oil cars that are loaded and prepared for shipment but are waiting for a locomotive and, more importantly, the labour to operate that locomotive.
