Will Traders Assume Additional Acres For Legumes?
Fundamentals
Soybean futures traders got a mixed message from Wednesday's release of the USDA Crop Production and Supply/Demand Report. Those with a bullish slant towards beans noted the USDA lowered its estimate for U.S. Soybean ending stocks this year to 185 million bushels. This was down 25 million bushels from last month's estimate, as U.S. export estimates were increased. This was supported by higher than expected U.S. Soybean weekly exports reported yesterday, with net sales up 26% from the 4-week average. Bean bears would counter that the USDA raised world Soybean ending stocks with lower Soybean Crush estimates from China, thus helping to raise inventory levels. China's recent heavy buying of Soybeans may be coming to an end, as there are reports that a senior Chinese official said that the country is done buying grain from last year's harvest. Now that winter is nearing an end, traders will turn their attention to the widely anticipated USDA Prospective Plantings report to be released on March 31st . At the USDA Outlook forum in late February, Soybean acreage was expected to total 77.0 million acres, up 1.3 million acres from last year, as swing producers switch to planting Beans from Cotton and Wheat. . However, there is some talk that acreage dedicated to Soybean production could be even higher. If true, next year's Soybean carry-out totals could more than double. If this scenario is correct, Soybean traders may look toward the old crop/new crop spreads for possible trading opportunities. If a trader believes that old crop Soybean supplies will remain tight this year but will increase sharply next year, a possible trade would be buying the July 2009 Soybeans (old crop) and selling November 2009 (new crop) Soybeans. Traders putting on this spread would want to see the price differential between July Soybeans and November Soybeans widen. As of this writing, July Soybeans are trading at $8.66 per bushel and November Soybeans are trading at $8.26 per bushel -- a $0.40 July premium to November. Traders should be aware that Old Crop/ New Crop spreads can become quite volatile, especially once the growing season is well under way and weather conditions become a factor.
Technicals
Looking at the daily chart for November Soybeans, we notice the downtrend remains in force since the contract highs were made last July. However the market has entered a consolidation phase and prices are hovering just below the 20-day moving average. With prices moving within a tighter trading range, traders should be on the lookout for a price breakout out of the triangle formation. If the breakout occurs on higher than average volume, the validity of the breakout improves. Support is seen at the recent lows of $7.84 in the November contract, with resistance found near the $8.72 area.
Mike Zarembski, Senior Commodity Analyst
