Few days back when we covered about the volatility of one of the highly traded commodities across the globe, soybean, we mentioned that the seasonal pattern in South American countries and the strategy of other nations are going to have a significant effect on the overall supplies by the USA and ultimately the price of the commodity. United States of America is the largest grower and exporter of the commodity itself in the world but currently the inventories have been tightest in almost five decades. The demand of the commodity is very high in the country and therefore the deficit was imported from the neighboring South American countries. But, the current dry weather and shipping delays in the South America is creating the imbalance between the demand and supply of the commodity therefore, the inventories have gone tight.

The average of 31 analyst estimates in a Bloomberg survey highlighted that with other things remaining constant, the current trend will catalyze the stocks to constrict to almost a nine-year low, 130 bushels before the next harvesting season in the United States of America. United States Department of Agriculture shows in a data that the reserves would actually total 4.2 percent of the demand. The drought darkened the hopes of the crop in Argentina whereas delivery backlogs were left out by the rain in the Brazilian ports and this boosted the price of the commodity. The biggest buyer of the commodity in the world is China and more than a quarter of the export sales of Brazil and Argentina are driven the Chinese demand policy. An expert at the Chicago Board of Trade argues that the demand and supply are likely to come to balance only after 6 months at least, but price rationing can solve the minor problems in the short run.

Argentina and Brazil in South America are two major destinations of the soybean purchase for the USA but the drastic seasonal conditions in each of these nations is hampering the total production. United States Department of Agriculture has once again decreased its production forecast by 2.04 percent which books more than 44 percent of the global soybean exports. Most of the agro-fields in Argentina have got less than half of the normal humidity which for sure will bring down the production significantly. Besides that, Brazil is having excessive rainfall and the excessive moisture in the Brazilian lands is actually worsening the soybean production scenario. Not only the production, are the ships which could make deliveries of the commodity held back for almost 50 days which, in long run, can create havoc in the overall trading scenario.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.