The Soybean Crush Spread Is Telling Us Demand Is Strong

08.05.2018

Processing spreads can tell us a great deal about the supply and demand fundamentals for a commodity. In the world of crude oil, crack spreads are the economics of processing a barrel of crude oil into gasoline and distillate products. When crack spreads move higher, it tends to signal buoyant demand for oil products which works its way back to demand for the crude oil.

In the world of soybeans, unless we eat edamame on a regular basis, our consumption of the oilseed is typically in other food products like salad dressing, cooking oils, and mayonnaise. When we enjoy animal proteins, we are indirectly consuming soybean meal which is the primary product in animal feed. It takes a tremendous amount of meal to produce a juicy steak or hamburger.

The soybean crush spread can offer valuable clues about the path of least resistance of the oilseed. Processors crush soybeans into meal and oil, and demand for those products tends to have lots of influence on the price of the oilseed. Meanwhile, the price of soybeans is going into the 2018 crop year on a bullish note after South American weather conditions limited production over recent months.

Soybeans rallied on drought conditions in Argentina

The United States is the world’s leading producer of soybeans, but when the weather gets cold in the Northern Hemisphere after the harvest season each year, South American production is critical for supplying the world’s requirements for the oilseed.

The 2018 crop year in the U.S. is just getting underway as seeds are going into the ground. The uncertainty of weather conditions over coming months through the all-important growing season and harvest typically causes increased price variance in the soybean futures market. This year, the market got off to a bullish start as drought conditions in Argentina limited their crop of the oilseed.


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