The Bear Case for Soybean Futures: Structural Oversupply and Weakening Chinese Demand Signal Downtrend

The soybean market in 2025/26 is at a critical inflection point, where structural oversupply, shifting demand dynamics, and bearish technical signals converge to form a compelling short case. For traders and investors, the confluence of these factors—rooted in both fundamental and technical analysis—points to a sustained downtrend in soybean futures ahead of the harvest season.

Structural Oversupply: A Global Imbalance

Global soybean stocks have reached record levels, with the 2025/26 marketing year projected to end with 124.9 million metric tons (MMT) of global soybean ending stocks, a 0.6 percentage point decline from the prior year but still above the 10-year average. This surplus is driven by record production in Brazil (176 MMT) and Argentina (50.9 MMT), which have flooded global markets with low-cost supplies. Meanwhile, U.S. soybean production, though constrained by reduced harvested acreage (80.1 million acres, the smallest since 2019), remains elevated at 4.292 billion bushels due to record yields of 53.6 bushels per acre.

The U.S. soybean export forecast has been slashed by 70 million bushels to 1.75 billion bushels, as China—a once-dominant buyer—has shifted its sourcing to Brazil and Argentina. China's soybean imports from the U.S. fell 43.7% in April 2025, with Brazil now accounting for 73% of its purchases. This shift is structural, not cyclical: Brazil's cost efficiency, logistical advantages, and projected 2% annual production growth through 2033 have entrenched its dominance in the Chinese market.

Weakening Chinese Demand: A Systemic Shift

China's role as the world's largest soybean importer has long been a pillar of global demand. However, its appetite for U.S. soybeans is waning. With domestic soybean stocks at 43.86 MMT and feed factories operating at 85% capacity, China has no incentive to absorb higher prices. The 23% tariff on U.S. soybeans, a relic of the Trump-era trade war, has further entrenched alternative sourcing patterns.

This shift has cascading effects. U.S. soybean exports to China, once a $24.47 billion market, are projected to fall by 73% in 2025/26. Meanwhile, Brazil's 176 MMT crop—projected to grow at a 2% annual rate—ensures its dominance in the short to medium term. The U.S. is now competing in a market where price, not quality, dictates demand, a disadvantage it cannot overcome.

Technical Breakdown: Bearish Signals Intensify

The Commitments of Traders (COT) report for August 2025 underscores the bearish sentiment. Non-commercial traders (speculators) hold a net short position of 17,000 contracts, while open interest has risen, signaling heightened market activity. Commercial traders, though moderately bullish, cannot offset the institutional bearishness.

Technically, soybean futures have formed a death cross, with the 21-day Displaced Moving Average (DMA) crossing below the 9-day DMA on June 25, 2025. Prices remain below the 50-day DMA, and the RSI and MACD indicators confirm weakening momentum. The price has also been trading below the midline of Bollinger Bands, forming a classic bearish pattern. Further downward pressure is expected as the price approaches the lower band.

Policy-Driven Demand Shifts: A Double-Edged Sword

While biofuel demand for soybean oil has surged—driven by the 45Z tax credit and EPA RINs—this has created a "two-speed" crush complex. Soybean oil prices have risen to $0.53 per pound, but soymeal faces oversupply pressures, with ending stocks projected at 475,000 short tons and prices near nine-year lows. This divergence favors soybean oil producers (e.g., Darling Ingredients, Cargill) but undermines soymeal-dependent players.

The EPA's proposed 7.12 billion biomass-based diesel RINs for 2026 reinforces long-term demand for soybean oil. However, this policy tailwind is a niche within a broader bearish market. For the soybean complex as a whole, the structural oversupply in soymeal and the shift in Chinese demand outweigh the benefits of biofuel-driven crush growth.

Investment Implications: Positioning for a Downtrend

Traders should prioritize short positions in soybean meal futures (e.g., MZMQ25) with a defined risk-to-reward ratio of 1.6x. Key parameters include an entry point of $284.5/short ton, a stop-loss at $297/short ton, and a profit target of $264.5/short ton. Conversely, soybean oil futures (e.g., MZLQ25) offer a tactical long opportunity, with a reward-to-risk ratio of 1.62x and a profit target of $360 per lot.

The August 12, 2025 USDA WASDE report will be a critical catalyst. Any upward revisions to U.S. yield projections or downward adjustments to export forecasts could intensify the bearish case. Weather-related volatility remains a wildcard, but the fundamentals and technicals are firmly aligned for a sustained downtrend.

Conclusion: A Bearish Consensus

The soybean market is caught in a perfect storm of structural oversupply, weakening Chinese demand, and bearish technical signals. For traders, the COT report and technical breakdowns confirm a market primed for further declines. As the 2025/26 harvest season approaches, positioning for a sustained downtrend—through strategic shorting and hedging—offers a compelling path to capitalize on this bearish confluence.