U.S. Poised to Produce Record Soybean Crop
Fundamentals
Never underestimate the U.S. Soybean producer, as despite a wet spring delaying Soybean plantings, the U.S. is expected to produce a record Soybean crop this year. Current estimates from traders and analysts are that 3.25 billion bushels of Soybeans will be produced, up moderately from the 3.199 billion crop estimate the USDA reported in the August crop report. Soybean yields are expected to have increased as well, with the trade looking for an average yield of 42.5 bushels per acre, up nearly 1 bushel per acre from the August report. The only thing that may possibly prevent this year's Soybean crop from being one for the record books would be an early frost/freeze. However, weather forecasters are calling for average to above average temperatures in the Midwest the next 7 to 10 days, which should help the crop as it moves to maturity. A record crop would help to alleviate tight old-crop ending stocks seen this year, as soaring Chinese demand for Soybeans has kept U.S. exports strong despite relatively high cash prices. We will learn what the USDA thinks about this year's Soybean crop when the September Crop Production and Supply/Demand report is released this morning at 7:30 a.m. Chicago time.
Trading Ideas
Given the potential for a record Soybean crop and with seasonal harvest pressure on the horizon, some traders may possibly wish to investigate buying bear put spreads in November Soybeans. An example of this trade would be buying the November 900 puts and selling the November 850 puts. With November Soybeans trading at 930.25, the spread could be bought for about 16 cents, or $800 per spread before commissions. The premium paid would be the maximum loss on the trade, with a potential gain of $2500 minus the premium paid should November Soybeans be trading at or below 850.00 per bushel at option expiration in October.
Technicals
Looking at the daily chart for November Soybeans, we notice prices continue to hover below both the 20 and 100-day moving averages. This would be considered a bearish signal by most technicians, however the market has moved into a strong support area around the 900.00 bushel area. This may be the start of a period of price consolidation until the harvest gets under way. The 14-day RSI is weak, with a current reading of 40.62. Major support is found at the recent lows just above the 880.00 area, with resistance found at the 20-day moving average, currently near the 966.00 area.
Mike Zarembski, Senior Commodity Analyst
