Historically, during the fall the seasonal tendency is for Indian organic soybean prices to decline into the middle of the Q4. During the balance of the fall, prices tend to find their seasonal bottom and then begin to rise following the harvest. Exporters tend to talk up prices by discussing issues related to the weather and the decline in production for the ongoing harvest.
In 2020, the themes are the same, but the price action is different. Soybean prices on the NCDEX have surged, rising to the 571 Rupee per metric ton which is the highest that NCDEX soybeans have been in October during the last 5-years. While the spread between Indian organic soybeans and Indian conventional soybeans will vary based on supply and demand and the region they are planted, prices for Indian organic soybeans have risen to $660 per metric ton FOB India. While meal prices continue to lag, it’s unlikely that they will remain subdued in the face of rising Indian soybean prices.
The Rupee has also strengthened recently which can also help buoy prices. During 2020, the Rupee has declined approximately 3% versus the US dollar but has strengthened approximately 4.5% since hitting a low in April of 2020 during the height of the COVID-19 scare. Since strengthening during the summer, the Rupee has remained in a relatively tight range between 73-74 per US dollar.
The Federal Reserve has used plenty of its ammunition to stabilize the US economy, and further economic weakness would put downward pressure on US yields, allowing the dollar to slip further. A strengthening Rupee will put additional upward pressure on organic soybean prices.
The rise in Indian soybean prices and in turn Indian organic soybean prices have occurred as projections for the new-crop in India have changed from 12-million metric tons of production down to 10-million metric tons of production. Price action is telling us that production projections might still be too high. Additionally, there is also an issue with containers making their way back to Indian which has lifted shipment costs to $120 per metric ton for both the east coast and the west coast.
During the past 4-years, the rally from the seasonal low in October to the seasonal high in either Q1 or Q2 averaged 19%. An average rally from 571 per metric ton would put non-GMO Indian soybeans near 671 per metric ton. This potentially could push Organic soybeans to $750 per metric ton and with shipping would place prices in Baltimore at $870 per metric ton or $24 per bushel for Indian soybeans.
With US domestic organic soybeans already priced close to $20 per bushel, this cycle would only generate further upside. During the U.S. harvest prices could be capped but once domestic soybeans are gone, the focus will turn to India where the majority of organic soybeans are imported. Nearly 70% of the organic soybean consumed in the U.S. is imported. While this large increase and outcome are unlikely to completely come to fruition The Jacobsen believes there will be further upward pressure on prices and is increasing its target for organic soybeans up to $23 per bushel for the Q1 of 2021.