Bean Prices Consolidate Ahead of USDA Report
Fundamentals
Neither bulls nor bears wish to take control of the Soybean market, as traders await the release of the January crop report this morning. This report will include the final USDA estimate of the size of the 2009-10 Soybean crop, with traders expecting a figure close to 3.33 billion bushels -- or slightly above the November estimate of 3.319 billion bushels. Ending stocks, however, are expected to decline, as U.S. Soybean exports have been running above projections so far this marketing year, as China has been a big buyer of U.S. Beans. Traders are looking for Soybean ending stocks to be approximately 235 million bushels, down 20 million bushels from the December estimate. Although demand for U.S. Soybeans has been good so far this season, many analysts fear that a majority of this business will move to South America as the Southern Hemisphere harvest comes near. Both Argentina and Brazil are expected to produce large Soybean crops this year, and both countries expect to see robust export business -- especially if the U.S. Dollar continues to show signs of a recovery. This fear is what is keeping any rally attempts in Soybeans in check, as there is great fear that all the Chinese export business will go elsewhere. Large speculative traders apparently do not share the same concerns, as their net-long position continues to increase. According to the most recent Commitment of Traders report, large non-commercial traders increased their net-long Soybean position by 15,393 contracts as of January 5th. This market segment is the only group net-long Soybeans at this moment, and should the USDA report be deemed “bearish”, we could see major long liquidation selling emerge -- which could make $10 plus beans only a distant memory.
Trading Ideas
Soybeans and Corn tend to battle for acreage each winter, as supply and demand forces adjust prices so producers plant the proper amount of each crop to ensure adequate supplies. However, outside factors such as the weather can throw the market into disequilibrium, which may take a year or more to correct. This exact situation might be occurring with the Soybean and Corn markets, as potentially hundreds of millions of bushels of Corn may never get harvested due to weather conditions. With a potentially record Soybean harvest out of South America looming, some traders may wish to investigate buying May Corn futures and selling May Soybean futures. Due to the price differences between the two crops, this trade is usually done in a 2 Corn vs. 1 Soybean ratio. As of Monday’s close, the 2 Corn:1 Soybean ratio spread was trading at a $1.51 Soybean premium. Traders who choose to buy Corn and sell Soybeans would want to see the ratio narrow -- or even see Corn go to a premium to Soybeans by the spring.
Technicals
Looking at the daily chart for May Soybeans, we notice that despite the recent price weakness, the overall price trend is higher. Prices are still above the 100-day moving average, which is a widely used signal of whether a market is longer-term bullish or bearish. However in the short-term, prices have fallen below the 20-day moving average, and several attempts to take-out the recent highs of 1086.75 have failed. The 14-day RSI has also turned weak, with a current trading of 41.80. Recent lows of 997.75 look to be the next support point for May Soybeans, with resistance found at the 1086.75 highs made on December 1st.
Mike Zarembski, Senior Commodity Analyst
