What The History of Soybeans Says About Pricing

At a Glance

  • From 1933 to 1948, the price of soybeans surged due to post-depression inflationary pressures

As we enter planting season for U.S. farmers, it’s a good time to look at the structure of the agricultural markets from a historical perspective. This helps us gain insight from past pricing patterns.

The grain markets are a great barometer for measuring purchasing power parity (PPP). Simply put, PPP is a measurement of prices in different asset classes using specific goods, to compare the absolute purchasing power of a given currency. Many traders and investors turn to the grain markets as a way to maintain purchasing power parity, especially during extraordinary times.

A good example is the price action in the soybean market between 1933 and 1948. In 1933 soybeans were trading at $0.39 cents per bushel. By 1948 the same soybeans were trading at $4.13 a bushel. There was nothing different about the beans themselves. The crops had no genetic modifications, the same protein count and yield per acre.

Soybeans: What Happened?

History taught us what happened. The U.S. government decided to take drastic measures by limiting private ownership of gold, inflating the country out of a depression then inflating the country out of World War II. By the time the policy leaders decided the economy was stable enough to no longer flood the system with dollars, it took ten times the amount of U.S. currency to buy the same bushel of soybeans.

Inflation, intentionally set off by the Federal government, debased the U.S. currency and left those sitting without proper exposure in a financial bind. From 1933 to 1948, if one were to sit in cash they would have been at a disadvantage. It became a period to maintain and preserve purchasing power parity.

Inflationary Forces Today

Many of the forces which drove soybeans, and other agricultural commodities, to prices ten times where they had been are starting to appear today. Although technology, the virus crisis and other disinflationary pressures have been the driving forces the last few years, central bank actions have created a condition which could begin an inflationary cycle once again.

Watch this week’s full episode above.

H. Jack Bouroudjian is chairman of Bull & Bear Partners, a financial services holding company based in Chicago. He is the host of the syndicated program “The Jack B. Show”, a regular commentator on CNBC, author of “Secrets of the Trading Pros” (Wiley, 2007) and a columnist for Townhall Finance.

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