Between U.S. soybean crush continuing at a record pace and an anticipated drop in soybean stocks in the next USDA reports, some analysts have been waiting for signs of rationing.
While some rationing is taking place, market analyst Karl Setzer of AgriVisor said it really isn’t working for two reasons.
“Number one, we’ve got to look at the value of the U.S. dollar,” he said. “The dollar has traded to the lowest value we’ve seen in the past three years.”
Commodities are more affordable when the dollar is cheaper. Buyers can purchase more because their currency is stronger than the U.S. dollar and has been since the beginning of December.
“When commodities start to rally and a weaker dollar, basically it offsets each other, so you have to rally your commodity values even more to slow down your demand,” said Setzer. “As the U.S. dollar continues to fade, we have to keep pushing values up higher and higher, especially in soybeans.”
Setzer said the second reason is there’s no cheaper alternative for importers.
“If you’re a soybean importer and your prices are getting high, what are you going to shift away to?” he said. “There’s palm oil, sunseed oil, there’s meal from those too,” he said. “There’s distillers grains and other alternatives, but those commodity values have rallied along with soybeans. If you’re going to have to pay an elevated value, you’re not going to do it for a substitute.”
How long will rationing last? Until South American soybean harvest is in full swing, Setzer estimates that could last until February.
“We’re not going to see the need for rationing as much because we’re going to have a global supply comeback,” he said. “The next four to six weeks are going to be critical in whether or not we need to ration even more soybeans.”
Setzer said it’s impossible to tell at what price level rationing will occur.
Setzer talks about Argentina’s decision to restrict corn exports, as well as news from 2020 that will still be making market headlines in 2021 in his full comments above.