CFTC Has Bean Bulls Fretting
Fundamentals
Soybeans are higher this morning, after Argentina's senate approved a bill that would give the President authority to impose an export tax on grains. This has the market fearing that this could curb exports of Soybeans by farmers. Protests against a similar resolution last year had an adverse effect on exports and forced importers to buy Beans from the US. Farmers may also hold-out for higher prices, further tightening exports from the world's third largest exporter. Dry growing conditions in Argentina can also been seen as bullish, as they can result in lower than expected yields. In the US, the USDA reported large purchases from China for three consecutive days, suggesting that demand has remained stout. Suggestions that China will offer subsidies to crushers also offers support, as it would likely lead to further imports of the oilseed.
News that the CFTC will be eliminating position limit exceptions for Deutsche Bank and another unnamed firm can be seen as bearish for Beans. This will lead to an unwinding of positions by long only funds, so traders remain cautious entering the long side of the market. The timeframe for such a liquidation has not yet been set, adding to the air of uncertainty. The Soybean Belt has been getting some much needed rain in recent days, but this will be followed by a dry spell. This can be seen as slightly bullish, as much of the rain will be in the eastern portion of the growing region which needed the rains. Bean fundamentals have remained very mixed over the past week, leading to the range-bound trading we have seen. The CTFC cracking down on speculation may be the deciding factor for the market in the near-term, especially if more firms lose their position limit exceptions.
Trading Ideas
The fundamental picture for Soybeans remains neutral to slightly negative, given the fact that the CFTC could wind up making even more funds unwind long positions. The commission may, however, give funds a bit of time to roll-out of positions to ensure orderly trading. If there was a greater sense of urgency to the unwinding of positions, the fundamental outlook in the near-term would be considerably more bearish. Technically, some traders may be looking for some follow-through to the bear flag pattern. Such traders may possibly wish to take advantage of the situation by entering a bear put spread, buying the October Soybean 950 put (SV9950P) and selling the October 930 put (SV9930P) for a debit of 8 cents, or $400, and an objective of 15 cents, or $750.
Technicals
Technically, the November Soybean chart suggests a downward near-term bias. After confirming an M-top formation earlier this week, the market quickly made its measured move to the downside. The rangebound trading that followed the move appears to be forming a bear flag formation, suggesting prices could test July lows below 900. The recent breakdown resulted in the market trading below the major moving averages. For momentum to shift back to the bull camp, the market must turn back above the cluster of moving averages between 972 and 988. The RSI has shown bearish divergence from prices in recent sessions, which could add to the downside pressure of the market.
Rob Kurzatkowski, Senior Commodity Analyst
