Category Archives: commodities

A Year-Long Blip


Figure 1: Soybean spot prices. Source: Macrotrends.com, accessed 7/23/2019.
Back on July 9th of last year, an Econbrowser reader wrote:

Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.

Needless to say, prices are not back to where they were in Sept-Nov 2017. Instead, Brazil has siezed market share and US soybean shipments to China have plummeted. From USDA FAS “Oilseeds”, on July 11th:

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The Course of the US-China Trade War, Viewed through the Lens of Soybeans

Or, hope died in August 2018…

Figure 1: (Log) July 2019 soybean futures contract price minus spot price (blue). Source: ino.com and macrotrends.com, and author’s calculations. Red dashed line at 7/12/2018, one year before expiration of July 2019 futures contract. Dates from Dezan Shira and Assoc.

Typically, the futures and spot should differ by cost of carry, but for soybean futures, but at the 3, 6 and 12 months horizons, the futures are an unbiased predictor of future spot rates (see Chinn and Coibion, 2014). Hence, the spread can (roughly) be interpreted as an estimate spot rate rising in the future, which is inversely proportional to the probability of a resolution of the US-China trade war (cost of carry is going to vary over the year, so the spread is only partly indicative).

For the course of the spot and July 2019 futures, see this post.

Predictions of Soybean Prices from One Year Ago

On July 9, 2018, reader CoRev disparages futures prices as accurate predictors of future spot prices for soybeans, writing:

no one has denied the impact of tariffs on FUTURES prices. Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.

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Soybean Watch in the Wake of the Trump-Xi Standstill

On July 12th, 2018, the closing price for a CBOT soybean futures contract expiring on July 12, 2019, was 885.75. As of 1:40PM Central on July 2nd, the price of the July 2019 contract was 877.00, 0.99% difference. In other words, soybean futures are (still) doing pretty well in terms of forecasting.

Figure 1: Price of contract for soybeans futures expiring July 2019 (black line), fifty data moving average (blue line). Source: ino.com accessed 7/2 1:40PM, and author’s annotations.

In other words, despite the Trump-Xi trade truce, soybean prices remain mired at where they were nearly a year ago (which is why I think Brad Setsers’ “standstill” better describes the outcome).