This year was characterized by stubbornly high input costs, persistent dry weather and optimism for domestic demand growth to offset recent uninspiring export demand. Now, Missouri producers have turned their attention to 2024 with the hope of better yields, lower production costs and stable prices. While getting all three would be preferred, two out of three appear realistic.
Two important agricultural economic concepts are needed to understand the demand outlook for 2023 soybeans: change in demand and quantity demanded. While similar in sound, their meanings have vastly different implications for U.S. soybean demand. A change in market describes a shift in consumers’ desires to purchase the product or service based on factors such as incomes, consumer preferences, substitutes and complements, population, etc.
A change in demand is where the whole demand curve moves out or in. For soybean producers, the desire is for the demand curve to move out, creating higher prices at the same level of supply. The reverse is also true: Prices fall with the same production level when the demand curve moves in. A change in quantity demanded refers to a movement along the demand curve caused only by a change in price. Prices move up or down the curve based on whether supply decreases or increases. For standard goods, a person’s consumption of an item declines as the price goes down.
There are two ways to get higher prices: 1) Move the demand curve out by finding new uses for the good or drawing more consumers to the product, or 2) Reduce the supply and move up the curve to higher prices.
So, what do these concepts have to do with the outlook for U.S. soybeans? First, let’s start with 2023 production. U.S. producers reduced soybean acreage to 4.9 million acres in 2023 compared to the previous two years. Additionally, the U.S. experienced two consecutive years of below-trend national yields. At just more than 4.1 billion bushels, the U.S. supply of soybeans at the end of 2023 is 350 million bushels, or 7% lower than expected at the start of the year.
All this is to remind readers that even if the quantities of soybeans demanded are less than usual or even expected, it does not mean soybean demand is necessarily bad; it could mean the market has moved up the curve.
The prior paragraph directly applies to 2023 U.S. soybean exports. U.S. soybean export commitments started the marketing year down 38% from average and have struggled to make up the lost ground. It is estimated that soybean exports for 2023/24 will be the second lowest in the past decade — only behind 2018/19 when African Swine Fever in China reduced demand for global soybeans while China increased tariffs on US soybean imports. Soybean exports for 2023/24, already behind 6% from the pace needed, may decline further before the year is finished, due to a lack of exportable supplies, a strong U.S. dollar relative to other currencies and increased transportation costs. The smaller volume of export sales for January and February delivery is concerning as this is the window when the U.S. typically moves a large majority of soybeans. The good news for soybean exports is that because it is believed the curve has not shifted, soybean exports are expected to increase in future years if supply rises.
Domestically, the use of soybean oil continues to increase. The domestic investment in soybean crush facilities and the growth in soybean oil use have shifted the demand curve. In two years, biomass-based diesel production capacity has increased 68%. Almost all the growth comes from rapid renewable diesel production expansion to serve domestic markets. The Food and Agricultural Policy Research Institute (FAPRI) expects domestic soybean crush to increase 90 million bushels this year over last year and continue to increase during the next five years.
This assumes no federal or state policy changes as FAPRI considers only current policy in place. The expansion rate could be quicker if states considering policy changes pass legislation to create or expand renewable fuel programs. U.S. exports of vegetable oils, including soybean oil, have nearly all disappeared as domestic consumers gobbled up available supplies. At the same time, vegetable oil imports into the United States are expected to reach an all-time high this year — just under 7 million metric tons. The U.S. became a net soybean oil importer in 2022/23. With the expansion in soybean crush facilities, any reduction in 2023 soybean exports may be offset by increases in soybean crush. The critical point is that while the total use of soybeans is expected to fall 220 million bushels in 2023/34, it is likely to rebound quickly in 2024/25 with higher production.
U.S. soybean prices have declined from costs experienced earlier in the year. The crop insurance harvest price of $12.84 per bushel was 7% below the projected price of $13.37 amidst a drought. With the expectation South America will produce a record 164 million metric ton crop this winter — up nearly 300 million bushels from last year — and the U.S. has a 4.5 billion bushel crop next summer on trend yields and 87.2 million planted acres, it is estimated soybean prices fall to $11.50 per bushel next year. However, given the tightness in the global soybean balance sheet, any reduction in supply moves along the demand curve quickly to higher prices.
For 2024, producers are deciding on planted acreage, and many have already bought some inputs for next year. Production costs will likely be lower in 2024 than they were in 2023. Total direct costs for soybean production in 2024 are expected to be down nearly 12% compared to 2023, with indirect costs roughly flat. However, only some costs will be lower as hired labor, liability insurance and interest expenses have all increased. However, producers should see relief on fertilizer, pesticide and seed costs. Pulling revenue and expenses together, the cost drop is expected to be larger than the price drop, resulting in increased returns for producers compared to 2023. This analysis uses a farm cash price of $11.39 per bushel. November 2024 futures price traded near $13 in early November, offering producers a chance at higher profits.
There are several reasons to be excited about the 2024 soybean outlook. First, it should be reassuring to producers that soft international demand for 2023 soybeans is more of a change in quantity demanded than a change in direction. Second, the investment in domestic soybean crushing facilities and increasing demand for soybean oil are creating a shift in orders by moving the demand curve out. Finally, the expected drop in 2024 input costs relative to 2023 is more significant than the anticipated decline in 2024 soybean prices, creating a slightly higher expected per acre return in the year ahead.
