Since July, the domestic soybean meal market has experienced a sharp upward price movement. By July 21st, the national average spot price for soybean meal had risen to 3,015 yuan per ton, marking an increase of 104 yuan per ton from the previous period. The futures market saw even more vigorous gains, with the primary M2609 contract settling at 3,148 yuan per ton on July 21st, up 52 yuan for the day. Meanwhile, the CBOT November soybean contract reached a high of 1,232 cents per bushel, its highest level since May 15th. The defining characteristic of this rally has been "strength abroad and relative weakness domestically," driven primarily by weather premiums in overseas markets. Rising international prices have rigidly increased domestic soybean meal import costs, forcing the domestic spot market to follow suit. We will now explore the logical drivers behind this unexpectedly strong performance in domestic soybean meal and its potential future trajectory.
Primary Driver of the Rally: U.S. Soybean Weather Premiums
July and August represent the most sensitive period for flowering, pod-setting, and seed filling for soybeans in the U.S. Midwest. High temperatures and drought can directly suppress yields, making this an annual window for fixed weather premiums in the oilseed complex. This year's scenario has been particularly pronounced, with overall rainfall in key U.S. soybean regions in July significantly below last year's levels. This has sparked market concerns over whether the U.S. soybean crop can achieve the projected high yield of 53 bushels per acre.
In early July, the U.S. soybean crop condition rating dropped to 64% good-to-excellent. As of the week ending July 19th, it had recovered to 66%, exceeding market expectations of 64% but still two percentage points below last year's 68%. The crop development pace is ahead of schedule, while drought-affected areas are expanding. By July 19th, 66% of the crop was blooming, compared to a five-year average of 60%, and 32% was setting pods, versus a 24% average. This accelerated development means the crop's demand for moisture is both earlier and more concentrated. Concurrently, drought areas in the Midwest expanded from 8% to 11%.
The U.S. Drought Monitor report shows that as of July 14th, 18% of soybean areas were in drought, far above the 7% seen at the same time last year. A significant "wet east, dry west" pattern has emerged across the production belt. States like Nebraska and South Dakota in the western regions have experienced persistent temperatures above 32°C with significantly reduced rainfall. Weather uncertainty persists. Forecasts indicate cumulative precipitation over the next 15 days in key soybean areas will be below average, with the area expecting deficient rainfall expanding. While some forecasts suggest rain opportunities in the eastern Midwest, the dry pattern in the western regions is unlikely to fundamentally change in the short term. Temperatures in the primary U.S. soybean states over the next 6-10 days are highly likely to be above normal across 94% of the region. The sharp rise in CBOT soybean prices has directly increased domestic import costs, thereby elevating the pricing benchmark for domestic soybean meal.
Supportive U.S. Soybean Demand: Concentrated Chinese Purchases Exceed Expectations
The U.S. Department of Agriculture has consecutively reported large soybean sales to China. Since July 8th, the USDA has confirmed sales of 1.612 million metric tons of soybeans to China, mostly for delivery in the 2026/27 marketing year. Notably, a single-day sale of 472,000 tons to China on July 8th marked the largest since November 2025. Another report on July 20th confirmed sales of 264,000 tons to China and 110,000 tons to unknown destinations. In its July supply and demand report, the USDA raised its 2025/26 U.S. soybean export forecast by 10 million bushels to 1.52 billion bushels. China's soybean imports for the 2026/27 marketing year are projected to reach 115 million tons. Improved export expectations directly tighten the U.S. soybean balance sheet, providing further support for international prices. Additionally, NOPA data showed U.S. soybean crush in June reached a record 214.3 million bushels for the month, indicating robust domestic crushing demand.
Geopolitical Premium in Broader Markets Lifts Overall Commodity Valuations
Tensions between the U.S. and Iran escalated again in mid-July, with Iran announcing another closure of the Strait of Hormuz and the U.S. declaring a resumption of its maritime blockade against Iran. Oil shipments through the Strait of Hormuz plummeted to 4.3 million barrels per day, just 22% of normal capacity. On July 17th, WTI and Brent crude futures settled at $82.5 and $88.1 per barrel, respectively, up 18.7% and 20.8% from the end of June. Rising oil prices influence soybean meal through two channels: first, increased shipping freight rates raise the logistics cost of soybean imports; second, stronger demand expectations for soybean oil as a biodiesel feedstock boost soybean crushing demand, thereby supporting U.S. soybean prices. A temporarily weaker U.S. dollar also provides support for dollar-denominated agricultural commodities. The linkage between soybeans and crude oil in biofuel production maintains a high correlation between their prices.
Domestic Market: Strong Expectations Versus Weak Fundamentals Fuel Bullish Positioning
The domestic market is trading on a "strong expectations, weak reality" narrative, with concerns over future supply tightness gradually materializing. The premium for nearby Brazilian soybean shipments continues to climb: the September premium has risen to 273 cents per bushel, up 28 cents from the previous period and 5.8 cents higher year-over-year; the October premium reached 283 cents, up 23 cents from the previous period and 5.6 cents higher year-over-year. Rising premiums directly increase import costs. Simultaneously, the theoretical crushing margin for imported soybeans on the futures market has continued to deteriorate, falling into negative territory, suggesting future import costs are more likely to rise than fall. Market sentiment received a further catalyst from an unexpected event. On the morning of July 20th, all mooring lines of a vessel at the Laotangshan Phase III terminal in Zhoushan Port snapped, causing the foreign vessel to drift uncontrolled and sink the approach bridge of the Phase V terminal, leading to berth closures. This sparked short-term market concerns over subsequent soybean arrival schedules. Influenced by these factors, bullish funds in soybean meal have continuously increased their positions, with the market displaying a typical bullish pattern of "rising on increasing open interest." However, it is important to note that the actual supply impact of this incident remains to be verified and should not be overestimated for now.
Market Outlook and Key Factors
The central market contradiction currently lies in understanding why soybean meal prices can surge significantly despite ample domestic supply and accelerating inventory accumulation. Synthesizing the points above, the answer is that futures primarily trade on future expectations rather than current spot inventory. The market is pricing in potential production losses from U.S. weather premiums, sustained Chinese purchases, and rising costs for new-crop imports, reinforcing these expectations. The combination of international weather-driven markets and strong domestic expectations has propelled this "bull market" rally. In the short term, a cautiously bullish outlook is maintained, while the medium-term view will depend on the interplay between weather premiums and domestic spot inventory accumulation.
Short-Term Outlook (1-2 Weeks): Weather Premiums Under Scrutiny, Volatility to Increase
The greatest short-term uncertainty lies with the weather. The latest crop condition rating of 66% good-to-excellent already exceeds the market expectation of 64%. If the rating continues to improve, weather premiums could dissipate rapidly. However, precipitation in production areas over the next 15 days is still forecast to be below average, with the area expecting below-normal rainfall expanding. The characteristic "capped upside, supported downside" volatile pattern of weather markets is likely to persist in the near term. Another variable is the divergence between crop ratings and price action. Typically, an improving condition rating suggests cooling weather premiums and price declines. Yet in this rally, even as the rating recovered from 64% to 66%, U.S. soybean prices continued to climb, indicating the market remains highly alert to weather risks during the critical August growing period.
Medium-Term Outlook (August): Core Battlefield of Weather Premium Expectations Versus Spot Inventory Buildup
August is the critical stage for U.S. soybean pod-setting and final yield determination. The future price direction hinges on three key variables:
First, rainfall in the U.S. Midwest. This is the most critical factor. If widespread, effective rain occurs over the next 1-2 weeks, alleviating drought conditions, weather premiums would likely retreat quickly, and soybean meal prices could peak and fall. Conversely, persistent high temperatures and scant rainfall would open the door for further gains. Currently, drought area in the Midwest has expanded from 8% to 11%, with soil moisture deteriorating in western regions, though forecasts indicate rain chances in the east. This east-west divergence complicates market judgment.
Second, the sustainability of U.S.-China soybean purchase orders. Whether large-scale purchases become a regular feature will determine if the expectation for tightening U.S. soybean exports can be sustained. While the USDA has confirmed consecutive daily sales to China, a slowdown in the purchasing pace would weaken support for U.S. soybean prices.
Third, the pace of domestic crusher offtake and inventory changes. The key is whether spot demand can keep pace with futures gains. If spot market activity remains persistently weak and inventories surpass 1 million tons, the sustainability of the futures rally will be constrained. Currently, domestic soybean meal stocks are near 900,000 tons and accumulating at an accelerating pace, indicating significant pressure on the physical supply side.
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