The USDA updated its estimate of last year’s soybean crop on Thursday morning, revising the crop size downward by 1.1% to 4.307 billion bushels. This news was especially jarring to the market, which expected this estimate to show an even larger harvest. While the 2016 soybean crop was still the largest in history, this downward revision sparked concerns that U.S. supplies may not be as ample as once thought. These fears sent beans on the largest one-day rally in months, gaining nearly 30 cents per bushel on Thursday alone.
Before our fall harvest, the USDA is expecting a remaining carryover of 420 million bushels, an adequate figure, but one that will require a healthy harvest from South America, where producers are preparing to bring in their “summer crop.” Potential trade conflicts with China could add a huge wild card on the demand side as China imports over 60% of the world’s soybeans. If we impose tariffs or sanctions on China, they may retaliate, which could dwarf the supply side of the supply/demand formula.
While most Americans may not think about eating soybeans directly, soy is prevalent in many processed foods, especially high-protein products, while soybean meal feeds our cattle, hogs, and poultry. Soybean oil (often labeled “vegetable oil”) is the predominant oil used in salad dressings and for cooking. Should China retaliate with tariffs or the South American crop fall short, these ramifications could impact the prices for many of the items in your grocery cart!
Gold prices jumped on inflation fears to a two-month high this week, topping $1,206 per ounce on Thursday. In recent years, China and India have been increasing their gold purchases, soaking up global supply and boosting prices.
Another potential source of rising demand could be Muslim investors; a recent ruling has permitted purchases of gold as an investment vehicle under Islamic law. The impact of the ruling hasn’t moved markets substantially, prompting skepticism from some analysts. However, others point out that even a small shift in the investing habits of the world’s 1.6 billion Muslims could have a substantial the impact on the gold market.