Bad weather could hurt soybean crops. That will help lift prices

Such continuing dryness could cause irreparable damage to this year’s Brazilian soybean crop and send futures prices for the grain as high as $18 a bushel, up from $12.43 recently, according to a recent Teucrium report. Brazil is the largest soybean exporter. That would follow an already spectacular rally, up from $8.22 in March, says Macrotrends.net.

Savvy investors might consider buying May-dated soybean futures contracts on the CME, or alternatively, the Teucrium Soybean (SOYB) exchange-traded fund, which tracks soybean futures prices. The fund has rallied 34% over the six months through Dec. 21, and 18% this year through the same date, according to data from Bloomberg.

What sparked the rally is an increase in demand from China, which needs the grain to feed livestock as it brings its hog herd back to full strength following 2019’s devastating outbreak of African Swine Fever. The disease led to the slaughter of more than 200 million Chinese pigs last year, according to a recent report from S&P Global.

China is expected to import 100 million metric tons of soybeans for the 2020-21 season, according to U.S. Department of Agriculture estimates. That’s a 21% jump from the 2018-19 season.

“China is importing record amounts of soybeans,” says Gilbertie. That will likely also help boost U.S. exports.

The demand surge is what caused the recent rally. But looking forward, unfavorable weather will be what propels prices even higher in early 2021. The combination of a current La Niña weather system and a low count of dark spots on the solar surface will likely mean lower precipitation, says Joe D’Aleo, chief meteorologist for agriculture at WeatherBell Analytics in New York. “In years of low solar activity and La Niña, it tends to be dry,” he says.

He isn’t alone in being concerned about the weather. “From our weather forecast, we think there will be problems with the drought continuing, and that will cause irreparable crop damage,” says Shawn Hackett, president of Hackett Financial Advisors.

In the fall, the lack of moisture delayed the soybean planting. And while recent “spotty, sporadic rainfall” gave some relief to the crop, he says, that much-needed rain will likely soon give way to more drought and could irreparably damage the crop in January and February.

Those two months are critical to whether the crop is a good one or a bad one, says Hackett. The make-or-break months for the Brazilian crop will be determined, and poor weather could decrease yields, sending prices higher.

Buying soybean futures is risky. It’s even more so when basing trading on weather forecasts. Some decent rain in Brazil could quickly rescue a partially depleted crop and send prices lower. That means anyone buying a soybean futures contract should observe the market and be prepared to close their position if the Brazilian weather turns decidedly from dry to wet over the next few weeks.

Still, on balance, the risks favor betting on higher soybean prices at this time. “If crops are as bad as we think they will be, then prices could go higher,” says Hackett.