What is the future price of soybeans?
Moreover, will its recent divergence from the market continue? Will we see escalated prices for the foreseeable future?
Comparison of the Prices for Commodity(soybean) and Stock Market (SP500)
As one of the most important commodities traded in the market, soybean has always served as a portfolio diversifier.
Analyzing the above chart of the price change for the past decade for soybean future and SP500, the price of soybean is relatively steady with its cycle independent from the performance of the overall stock market represented by SP500. In the general bull market from 2012 to 2020, the average price of soybean fluctuated but showed an overall decreasing trend with the purple line representing the MA50 of SOYB.
However, when the pandemic broke out in early 2020, the price of soybeans started increasing. Many believe it was as a result of the US government’s loose monetary policy that lifted all hard commodities. The policy minimized the downturn of the stock market but led to inflation domestically and internationally.
Then, in order to control inflation, the Federal Reserve started increasing the interest rate which led to the downturn of the stock market in the first quarter of 2022. On the contrary, the price of soybean continued which makes it a great hedge for the market.
Now let’s look at volatility in the greater markets!
Let’s take a few step backs from just Soybeans and look at the global markets. Moreover, the increased volatility we have seen.
The inflation rate in the US was high in April, around 8.3%. As a result, the Federal Reserve lifted the interest rate on May 4th to fight inflation, which reached a 40-year high. I think the Fed’s increase in the interest rate will cause the global market to be more volatile in the future. It will cause the dollars to go back to the domestic market and lead other currencies to depreciate. We have already seen that the Turkish lira depreciated a lot. In addition, the volatility of the market is also influenced by other factors such as the war and the pandemic and the climate.
The Russian invasion of Ukraine caused skyrocketing oil prices to $120 per barrel.
And the commodity prices also increased because of the war. The inflation of oil prices exacerbates inflation in the market. Russia may likely be on the opposite side of Europe in the future, and it may even cause a war between Europe and Russia in the future which may lead to more volatility in the market. Meanwhile, the relationship between Russia and the US is also uncertain and may become worse in the future. In addition, the increase in the interest rate usually leads to a rise in the oil price, according to historical records. The high oil prices will cause the market to be more volatile in the future.
In addition, the pandemic had pressure on the supply chain; I think it will have inflation pressure. The pandemic has nearly ended in the US, but in other regions around the world, it is still pretty serious; for example, Shanghai last month is still locked down so when international trading will go back to normal is uncertain. The new variant of the COVID-19 and other diseases such as monkeypox may also influence the markets. In addition, the uncertainty in the nation’s relations will also influence the policies and continuing influences supply chain and market. The trade of the commodity needs the policies and cooperation of all other courtiers, except the monetary policy, it also requires the political, social, and military policies to make the market stable.
However, it may have more and more challenges in the nation’s relations because of the tension in Russia, Ukraine, and Europe, so I think the market will be more volatile.
Lastly, because of global warming or planetary pollution. Or whatever you call it. There will be more and more extreme weather in the future. As a result, leading to the unfavorable production of food. As the prominent producer of corn, soybean, and wheat in the world, in the future, the US may use the policies to make the food’s price higher to benefit the domestic markets, which will also lead to more volatility in the global market in the future.
In conclusion, as I have said before, I think the global market will become more volatile in the future.
