Commodity Trading:
Soybean Meal Futures
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Supply
/ Production Considerations
To understand the
production cycle of the Soybean products, one must understand the
production of Soybeans. Since
Soybeans are harvested by mid November, production of products tends to
increase to meet demand and consumers tend to begin to build stocks.
However, Soybean producers usually withhold supply right after
harvest for tax purposes. The
freezing of interior waterways slows transportation of Soybeans to
processors, so supplies tend to begin to get a little tight in the first
part of the year. But, as
farmers market their crops to raise cash flow for the planting effort and
the interior waterways free up, the price of both Soybean Meal and Oil
fall along with Soybeans in the later part of January and early February.
Concerns
over the status of the South American Soybean crop, which is typically
pollinating or being made in February and March, coupled with a lack of
immediate available supply and Soybean planting concerns, tends to drive
Soybean Meal and Soybean Oil prices higher until mid May, when the
Midwestern crop is planted.
Planting
progression, the fact that the South American crop is now impervious to
damage, and with it being so close to harvest, tends to weigh on Soybean
and product prices. The main
growing regions of South America are Brazil and Argentina.
Argentina is a major cattle-producing nation as well, so it does
not export much of its Soybean Meal.
In fact, Argentina is typically a net importer of Soybean Meal.
Brazil, on the other hand, tends to export all of its Soybean Meal,
as well as the bulk of its Soybean Oil.
Therefore, as pollination of the United States Soybean crop
approaches, both of the Soybean product markets tend to rally, but Soybean
Meal does so with more vigor, while Soybean Oil tends to halt its decline.
As
summer wears on, Soybean Meal and Soybean Oil tend to fall along with the
Soybeans. In the beginning of
August, however, Soybean Meal tends to bottom.
Soybean Meal is primarily a livestock feed.
So, as the South American Soybean Crop is being processed, and the
products exported, more Soybean Oil is being exported than Soybean meal,
especially with summer on this side of the equator being winter on the
other side. In most years,
the best the Soybean Oil market can do is to hold steady, while Soybeans
and Soybean Meal rally somewhat.
Soybean
Meal tends to outperform both Soybeans and Soybean Oil from early August
through to mid September, as the United States Soybean crop is being
prepared for harvest. Because
of Soybean Meal's fat, amino acid, and protein contents, this product is
an ideal winter feed. So, not
only is demand running brisk for winter feed in South America, US
cattlemen tend to stock up in early September for their winter feed needs.
Soybean Oil, however, is being flooded with South American supply,
as well as supply from competing products, such as rapeseed oil and palm
oil, which have also been recently harvested.
As
harvest approaches, supplies of US Soybeans, and especially Soybean
products, is pretty thin; therefore, for roughly a month after the harvest
is completed, Soybean products remain in tight supply situations.
This tends to be exaggerated by the fact that farmers, as well as
processors, tend to withhold supply near year-end to postpone tax burden
into the New Year. Soybean
Oil has tended to lead this early winter rally, with Soybean Oil being the
strongest member of the Soybean Complex from October through December.
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| Supply | Demand
| Seasonal Overview | Seasonal
Charts |
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