Basically, the low prices have caused more people to consume or demand soybean and related products while the low prices diminished the incentive to plant crops, which has lowered supply. Looking ahead, basic economic fundamentals suggest that low supply and high demand would translate to rising prices.
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Sal Gilbertie, President, Chief Investment Officer and co-founder of Teucrium, also pointed out that China, which has been increasing its imports of soybeans for the past several years, could continue or even increase imports of U.S. soybeans due to political considerations over the balance of trade tensions between China and the U.S., further fueling demand for soy and potentially pressuring prices from the demand side.
“I just keep coming back to the fact that corn and soybeans are very near their cost-of-production levels, which skews the risk/reward calculation of investing in these things, especially given the fact that consumption is steadily rising,” Gilbertie told ETF Trends. “The world has become complacent to record crop production, which historically cannot be relied upon for long periods of time. There is opportunity when grain prices are at or near their cost of production – people will not stop using grains even when supplies get tight, which is another recipe for significant price movement at some point in the future.”
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