2015 has certainly been an interesting year for the world soybean industry. Argentina, Brazil and the US all produced record crops with global supplies vaulting from being relatively tight to the largest in history. Farmer profitability largely dissipated as cash prices fell from well over US$10/bushel to less than US$8/bushel in some areas.
It is worthwhile to look at what 2016 may bring to the sector. Weather events will likely have more impact on the market than any other factor, but other unforeseen issues will also have an effect.
Among these could be the global and national economies as well as disputes, politics, labour strikes, elections and perhaps even armed conflicts among nations. Four factors could be particularly influential.
Increased weather problems
For the most part, the world’s major soybean producers have enjoyed good weather over the last three years. The US has seen above-average soybean yields during that time-frame with record yields last year and again in 2015.
Argentina produced a record soybean crop of 60.8 million tonnes in 2015, and Brazil has harvested three record soybean crops in 2013, 2014 and 2015. The only major country that has seen major soybean crop losses because of poor weather has been India. Even with record growth in world soybean consumption of 23.51 million tonnes in 2014/15, global stocks have increased because of the record production.
One or more of the major soybean-producing countries will likely not enjoy such favourable weather in 2016. It already is drier than normal in northern Brazil, which has delayed planting of the crop to be harvested next year.
An El Niño weather pattern such as the one currently in place typically provides southern Brazil and Argentina with good rains during their growing season, but northern Brazil has experienced drought at times. If that occurs as some Brazilian weather forecasters are predicting this year, it may have a major impact on yields in the states of Mato Grosso, Para, Tocantins, Rondonia, Maranhao and Piaui. This could substantially reduce Brazil’s 2016 soybean crop.
The US too is unlikely to see the same positive weather in 2016 that it did in the last three years. The El Niño tends to bring increased rainfall to California, which would be a very positive outcome. However, the El Niño is also associated with dryness in the eastern Corn Belt and Southeast.
If that is the case in 2016, the US will likely see a significantly smaller soybean crop. Additionally, if the current El Niño shifts to a La Niña, it could especially cause lower rainfall in the eastern Corn Belt, given prior patterns for this phenomenon.
Global palm oil production is likely to be negatively impacted as well by the El Niño. This is because less rainfall is normally received during this type of weather event in Malaysia and Indonesia, the world’s top palm oil-producing nations. If palm oil output does decline, it will be positive for soybean oil demand and other competing vegetable oils.
Use of less crop inputs
For the last few years, the world’s soybean farmers mostly have had a profit maximisation mindset because of high prices and the potential for high profits. As a result, they tended to use more fertiliser, better seed and additional crop protectants to maximise yields.
Now that soybean prices and profitability have sharply declined, farmers are likely shifting into a risk minimisation attitude. This will tend to cause producers to reduce their financial outlays by using less fertiliser and possibly fewer crop protectants.
There is evidence that this already has occurred with farmers in South America who are in the midst of planting their next soybean crop. Because of the use of less inputs, there is a likelihood that soybean yields in 2016 will be below those in 2015.
