Soybeans See Record Short Position Amid Shifting Chinese Demand And Uncertain Supply

Big Short

Traders have been offloading Soybeans since November, peaking last week, as global stockpiles grow. As of Friday, traders had increased their bearish stance on CBOT (Chicago Board of Trade) soybean futures and options, reaching a new record net short position of 171,999 contracts, up from 160,653 the previous week. This surpasses the previous all-time high net short of 168,835 contracts from May of 2019.

Chinese Demand

China plays a pivotal role as the leading global soybean market, importing 60% of all internationally traded soybeans and around 30% of annual U.S. soybean production. Changes in its soybean needs have a huge impact on the US market.

The long slide soybean prices have experienced is largely tied to a drop in imports from China. The country imported 13.04 million metric tons of soybeans in January and February this year, the lowest in 5 years. That is an 8.8% drop from the same period last year.

A New Hope?

Prices saw a roughly 3.5% reversal this week as the USDA released a positive WASDE report, where China is concerned. 

The March World Agricultural Supply and Demand Estimates report was not all positive, however. The USDA expects Brazil – America's main soybean competition – to produce more than previously expected. However, the market seemed to not mind – or not believe it; many found the estimates rosy.

Instead, investors looked to the significant increase in expected Chinese imports over the next year. This caused soybean futures to move well above the 20-day moving average.

Investors are cautiously optimistic about what this means for soybean prices moving forward.

Opportunities For Investors

The US agriculture system can present a big opportunity and be a critical component of a well-diversified portfolio. For those who believe the recent reversal for soybeans will hold, now may be the right time. Individual investors can get involved by trading futures, but this can be a complicated practice out of reach of many. Even for seasoned traders, pitfalls abound.

Another alternative is investing in a commodity ETF, like those offered by Teucrium Investment Advisors, LLC. The firm offers a host of agricultural funds carefully curated to give investors simple, liquid access to commodities, funds like Teucrium Soybean ETF SOYB.
Photo by Kelly Sikkema on Unsplash