Why I think that investing in soybeans is a good move in 2020

Why I think that investing in soybeans is a good move in 2020

  • The demand for soybean has dropped due to global crisis
  • Demand should improve in second half of 2020
  • The price could fall more before it recovers

Soybeans are versatile legumes that are used to produce tofu, soy milk, and animal feed, among other things. They are also a commodity that can be traded in a number of ways, such as in futures or ETFs.

The currency price of soybeans

The price at the time of writing is $8.79 (£7.07) per bushel. This shows a recent improvement from a low of just $8.47 (£6.81) a couple of weeks ago. However, the price was at $9.35 (£7.52) at the start of 2020.

Historically, the price has suffered numerous peaks and troughs as it moves between about $8 (£6.43) and $10.50 (£8.45). In 2016, a peak saw it reach as high as $11.78 (£9.47).

It is under-valued just now but moving in the right direction. Yet, there are still a number of factors to take into account to understand whether it is a decent investment at this time.

The different factors

There is no doubt that the coronavirus outbreak has had a big impact on all global markets. In the case of soybeans, one of the main issues has been the decline in demand from the Chinese livestock market.

The demand for soybean for animal feed in the Asian country is expected to remain low until at least the second half of the year. However, there is potential for a strong bounce back in the second half of 2020. This is assuming that the outbreak is under control by then.

Another important factor is that China is reporting a record-breaking soybean harvest this year. On the other hand, there are fears of a wet spring disrupting the harvest in the US. There have been tentative suggestions of the soybean price reaching $10 per bushel (£8.04) in 2020.

A look ahead

One thing that won’t change during this global health crisis is the need for people and animals to eat. Indeed, it puts even more of a focus on staple items like this. We could see a rising level of demand for soybeans as people get their priorities in order.

There have been suggestions that farmers may opt to plant more soybeans instead of corn. This will soon be revealed once the spring planting season has begun, so investing in soya just now comes with the risk that production is higher than average this year.   

Taking everything into account, the price of soybeans appears to be on the low side just now. However, it could be the second half of 2020 before we see any sort of significant increase in the price.

Given the current uncertainty and the possibility of increasing levels of supply, it is possible that the price falls further before it rises. As usual, choosing the perfect moment to invest is crucial.

At the moment, it is probably wise to hold off a little longer before making a move into this commodity. After doing so, it is likely to be a relatively long-term investment. It could be the end of 2020 or even later before we see this commodity recover its value.    

By Robert Bell
Having worked for years in the UK banking industry, I began writing and reporting financial markets after migrating abroad to Bolivia. My interests include learning new ways to make money and learning to speak Spanish.

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