While the increased demand for soybeans will be good for U.S. producers, it will not be as rosy as many are anticipating, says Richard Brock
By Richard Brock, Brock Associates
One of the common mistakes made in commodity price analysis is to focus on just one fundamental factor and ignore all the rest. As almost everyone is aware, a hot topic in the soybean world is renewable diesel. The prospect of so many new soybean processing facilities and the huge demand it’s going to have on soybeans is on a lot of minds. Here are the facts as we know them today. There are approximately seven new plants being proposed for construction, mostly in the Midwest. There are eight plants that are currently in operation that are proposing significant expansions. Combined, our math shows it would increase soybean usage by 630 million bushels per year by 2026. This is assuming that all the plants that are on paper now get built. That is probably not going to be a correct assumption.
On the other side of the equation, as a result of significantly higher soybean prices this year, Brazil’s soybean production is expected to increase to 149 million metric tons next year vs. this year’s 126. That’s equivalent to an increase of 845 million bushels! Putting this into perspective, this year’s projected increase in Brazil’s production next year is larger than the total increase in projected U.S. crush capacity forecasts three years down the road. The increased crush capacity will, however, be supportive to soybean prices since the soybean market is going to have to pull acres away from corn. This is not going to happen in one year. This will be gradual over four years. What it could result in is that the United States might become an importer of soybeans and the majority of the world export market goes to Brazil. They have already overtaken us considerably in both production and exports and that trend is going to continue. Good, bad, or indifferent, the world is changing.
While the increased demand for soybeans will be good for U.S. producers, it will not be as rosy as many are anticipating. The trend will also result in a glut of soybean meal on the market and the spread between soybean oil and soybean meal prices will widen. Let’s not forget, however, that what appears obvious rarely happens, because the anticipation of the changes does not always occur.
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