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What in the world is going on with soybeans: could the stocks-to-use ratio finally revert to mean?

Jun 12, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

 

  • In the soybean market today, the stocks-to-use ratio, at close to 27%, is about the highest it has ever been
  • The present situation with soybeans is the result of a year of abundant supply and weak prices
  • While slumping US exports to China have been the focus of a lot of the press, there is a more important story
  • Today, Bloomberg highlights the likelihood of mean-reversion presently is much greater than seeing these trends continue given the today’s environment
  • When looking at past instances when the stock-to-use ratio was at similar levels, we see a strong rally in soybeans followed
    • After being at a similar level in late 1986, soybeans rallied 120% from 1987 to 1988
    • The same scenario played out in the mid-90s, with a 1994 stock-to-use ratio similar to today leading to a 70% rally that culminated in 1997
    • Again in 2006, stock-to-use hit a high, and another rally ensued, this time 230%, ending in 2008
  • Soybean stocks are presently the highest ever recorded, at over 2 million bushels when looking at a 4-quarter average
  • The US has increased production for six straight years, something never seen in USDA production data that goes back to 1964
  • Bloomberg’s call is for the abundant supply and low price environment to flip and the stock-to-use ratio will revert to mean, as has been seen multiple times in the past
     

 

 

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