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Soybeans Soar to Six-Year High on Foreign Demand, South American Weather

December 18, 2020 at 19:59 by Andrew Moran

Soybean futures are trading at their highest levels in more than six years as the agricultural commodity surged above $12. Soybean prices are popping to finish the trading week on strengthening foreign demand, as well as concerns over South American weather and domestic inventories. If market forecasts are accurate, soybean could lead the commodities boom in 2021.

January soybean futures settled the Friday trading session up $0.2075, or 1.73%, to $12.22 per bushel on the Chicago Board of Trade (CBoT). Soybeans recorded a weekly advanced 5.2%, adding to their year-to-date rally of nearly 28%. This is the best soybean prices have been since 2014.

Industry observers are warning that US soybean inventories are tightening due to soaring demand from US processors and Chinese importers. Foreign buyers are taking advantage of a weakening greenback, which makes dollar-pegged commodities cheaper to purchase. The US Department of Agriculture (USDA) recently reported that China is already buying next year’s soybean crop, acquiring approximately 126,000 tons that will not be shipped until after the 2020–2021 marketing season is completed.

Beijing is still required to purchase a specific amount of soybeans under the phase-one trade agreement with the US. China has caught up with the provisions inside the pact in the second half of 2020. Will it continue to import more in 2021?

Market observers believe that Beijing does not know if Brazil’s harvest will be big enough to satisfy demand. As a result, they are turning to American farmers for their soybean needs. However, the USDA did not adjust its forecast for Brazilian output, predicting that production will still reach 133 million metric tons during the next harvest.

Weather conditions in South America contributed to soybean’s weekly rally. Brazilian and Argentine crops have reached a setback amid dryness in both major growing areas. Although Brazil has seen some rainfall in recent days, traders on the Buenos Aires Grains Exchange remain cautious about the effects of the drought at the beginning of the growing season.

Although the greenback traded higher on Friday, the US Dollar Index (DXY), which gauges the greenback against a basket of currencies, fell 1% this week. A lower buck is good for commodities priced in dollars because it makes it cheaper for foreign investors to purchase. This has been one of the reasons why agriculture has been booming in 2020, and why it could maintain this trend in 2021.

In other agricultural commodities, January corn futures added $0.045, or 1.04%, to $4.37 per pound. January wheat futures dipped $0.0075, or 0.12%, to $6.08 a bushel. January coffee futures slid $0.0035, or 0.28%, to $1.256 per pound.

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