Derived from as flour from soybean as a residue of soybean oil production, soybeans meal has grown to be an important source of protein for animals – notably pig, chicken and cattle. Like many other agricultural commodities, soybean meal is an investable asset. Two options are available to investors that are looking to profit from the price of the commodity. The first is through futures contracts, while the second option is offered through ETFs.
Wondering what factors move the price of this commodity? Find out be below.
U.S. soybean production
U.S. is the second largest producer of soybean in the world, producing just about 500,000 ton less than first-placed Brazil. And the US is poised to increase its production in coming years. What this means for soybean meal is that there are chances of overabundance. If this is the case, soybean meal prices will go down.
The effect of such situation is even going to be greater when you consider that – according to oil world – crushing soybean yields about 78 percent to 79 percent of soybean meals and only about 18 percent to 19 percent of soybean oil. Perhaps this is the reason why the price of the commodity has slumped 20 percent – as of the time of writing – in 2014. This goes to show just how important US soybean production is to the soybean meal market.
Alternative oil meals
Some alternative oil meals include castor meal, rapeseed meal, linseed meal and cottonseed meal. The use of these alternatives keeps growing year over year. In general, the more abundant these alternatives are, the weaker the soybean meal market will be.
For instance, according to Businessweek, the output of eight major oil meals in the year through September 2015 is expected to climb to 293.5 million metric tons from 282.8 million tons. Analysts say the abundance of these alternatives, is even adding to the weak outlook of soybean meal. So when predicting soybean meal prices you want to take into account the availability of alternative meals.
Feed grains demand outlook
Looking at things from another perspective, the impending growth in soybean meal production might not hurt prices has mush as the point above made it looks. According to Oil World, the growing soybean crush in the US and elsewhere will make soybean meal “an aggressive competitor for feed grains, which is expected to prompt larger consumption in the livestock industries worldwide.”
This is because the impending abundance of soybean meal will make it relatively cheaper than feed grains, a situation that will entice farmers to choose soybean meal over feed grains. In the end, as demand in international market grows, this could help the soybean meal market pick up again.
Export data, which is an indication of oversea demand, also affect soybean meal prices. It is also an indication of inventories. Therefore, rising export of soybean meal is most certainly going to drive prices high, as it means that inventories may be dwindling. On the other hand, falling export data do send prices low, owing to fears that the soybean meal market be experience over abundance.
Since soybean meal is a product of soybean, climate condition, which would normally affect the production of soybean, is also going to affect soybean meal prices. This is becoming more important only because of the changing global weather, which is bringing about either unusually cold or hot weathers.
The cultivation of soybean requires hot summers with optimum growing condition in mean temperatures of 20 oC to 30 oC, or 68 oF to 86 oF. Any temperature below 20 OC or above 40 oC brings about stunted growth. The occurrence of this (lower or higher temperature) will reduce farm production, which might end up sending prices high. For instance, Brazil has been experiencing more intense drought seasons in recent years, which has been accompanied by rising temperature. Perhaps, this is why US soybean production is about eclipsing that of Brazil. With such an important producer of soybean going through a tough time, we might see an increase in soybean meal, due to dwindling supplies from Brazil.
Soybean meal demand in china
Due the fact that China is one of the biggest producers of livestock in the world, its demand for soybean meal can influence prices. Here is a reference. On July 22, 2014, Bloomberg repotted that soybean buyers in China are increasing imports as the demand for animal feed is increasing. Increasing demand in China will always help clear supplies, in period of over abundance, which could help the market recover.
This might even get bigger with the every improving Chinese economy, which might increase the country’s livestock production – an event that would increase the demand for cheaper oil meals.
You must have been waiting for this to come. Yes, the price of soybean will always affect the price of soybean meal. As you would expect, the high soybean price is likely to lead to an increase in the price of soybean meal as well. On the other hand, low soybean prices could also lead to a decline in soybean meal prices. However, it is important to note that, this relationship may not hold all the time, as some other forces could balance out the effect of soybean prices.
Since soybean meal is a product of soybean crushing, fuel prices is likely to influence its prices. When fuel prices are up, the cost of crushing soybean also goes up. This means that there would be an increase in the cost of producing soybean.