What a way to end a rally!
Fundamentals
The recent bullish stampede by Soybean traders hit a brick wall yesterday in the guise of the USDA Crop Production/Supply Demand report. The USDA surprised traders by raising U.S. Soybean ending stocks to 225 million bushels, vs. 205 million bushels last month. Many analysts were looking for stocks to remain unchanged or even drop from last month's totals, as export demand has been solid -- especially from China, whose exports were up nearly 22% in 2008. However, the USDA raised U.S. Soybean production estimates by 38 million bushels and lowered Soybean Crush estimates by 30 million bushels -- mostly due to weak Soybean Meal demand. These figures combined with very bearish supply and demand figures for Corn gave buyers very little reason to bid for Soybeans, and prices closed down the 70-cent limit in the main old-crop months up to July 2009. Since December 5th, March Soybeans have gained nearly $3.00 per bushel, as traders began to put a "weather premium" into prices as South American growers in Brazil and Argentina have been struggling with below normal moisture. Large non-commercial traders have been aggressively adding to their net-long positions, with the most recent Commitment of Traders report showing that these large speculative accounts added 3,278 contracts to their existing long position for the week ending January 6th. Now that the USDA report is out and the up-trend has been seriously damaged by Monday's steep declines, it will be interesting to see whether the large speculative traders will try to defend their long positions or begin to liquidate, which could cause further sharp declines as sell-stops are triggered and key support points are put to the test.
Technicals
Looking at the daily chart for March Soybeans, we notice a modest rally attempt yesterday after prices fell to nearly 2-week lows. The uptrend line drawn from the December 5th lows has been penetrated, and Tuesday's rally attempt failed to close above this key support point. Technical traders who look for divergences between prices and the 14-day RSI will notice the bearish divergence that formed just one day before the USDA report was released! The next support point for March Soybeans is seen at the 20-day moving average, currently at 941.25, with resistance at Monday's high of 1060.25.
Mike Zarembski, Senior Commodity Analyst
