Bean Prices Crush Demand
Fundamentals
Soybean Meal prices may have gone up too much too quickly, which may eventually lower demand. Yesterday's export sales number showed net sales down 67% for the week at 18,400 metric tons, and net exports down 63% at 80,900 metric tons. China has indicated that it may continue to add to its strategic stockpile of Soybeans, which may eventually lead to more Beans being crushed domestically, limiting demand for Meal and Bean Oil imports. Old crop stocks do remain relatively tight, but weather conditions for new crop Beans remain ideal, signaling the possibility of better yields, which could offset some of the fears created by lower acreage. Tightening basis between the cash and futures markets could be a sign that demand from processers may also be waning due to rising prices. Soybeans are a couple of weeks away from the most critical part of the development stage, so any inclement shift in weather could be seen as supportive for prices. The stabilization in the USD in recent weeks may plague export demand and reign-in speculation in commodity markets. Downside potential in Beans and products may be limited by relatively tight supplies.
Trading Ideas
Some traders may wish to take advantage of the bearish shift in fundamentals and technicals by entering into a bear put spread. An example of such a position that some traders may wish to consider would be buying an August 330 put (SMQ9330P) and selling an August 310 put (SMQ9310P) for a debit of 3.50, or $350. The risk is the initial investment for a potential maximum profit of $1,650 if the August contract closes below 310.00 on the July 24th expiration date.
Technicals
The August Soymeal chart shows the market confirming a double-top formation on Wednesday. The measure of the pattern suggests that prices may come down to test support near the 300 mark. Wednesday's close was also below the 50-day moving average, which can be seen as bearish. The 20-day MA is also converging with the 50-day MA. A crossover of the two averages could be seen as bearish in the intermediate future. Prices were initially able to hold support at the 325 support level. A close below 325 and the 100-day MA in the vicinity could speed-up selling pressure. Failure to break support could be seen as a win for the bull camp and could lead to sideways trading or a retest of recent highs.
Rob Kurzatkowski, Senior Commodity Analyst
