Surprises Abound in USDA Planted Acreage Report
Today's Idea
Lower than expected acreage for Soybeans puts additional pressure on weather conditions to be ideal in order to help the US replenish its current tight inventories. The sell-off seen in prices on Thursday was mainly tied into overflow selling caused by Corn's limit down move. Some traders may wish to take advantage of the weakness in Soybean prices to possibly explore buying a November Soybean futures, currently trading at 1294.00 as of this writing, with an upside potential of a move above the June highs just above the 1400.00 level. The risk on the trade would be a close below the 200-day moving average currently near the 1280.00 area.
Fundamentals
Never underestimate the resilience of the American grain producer, who despite a difficult spring planting season, still managed to plant the second highest Corn acreage since 1944, in addition to better than anticipated spring Wheat acreage - i.e., if one is to believe the USDA's planted acreage report released on Thursday. The USDA shocked many traders by reporting that US growers planted 92.3 million acres to Corn this spring, which is way above the pre-report estimate of 90.77 million acres. Government statisticians also raised their estimate for harvested Corn acreage by 1.7 million acres to 84.9 million acres. Quarterly Corn stockpiles were estimated at a higher than expected 3.670 billion bushels, as the USDA believes that high Corn prices are beginning to curtail demand. Spring Wheat acreage was lowered to 13.6 million acres, but that is nearly 300,000 acres above traders' expectations. Given the widespread flooding in North Dakota, many traders still believe that this figure will be revised lower in upcoming reports. The only saving grace for grain bulls was in the Soybean acreage estimate, as the higher than expected Corn acreage took away from Soybean plantings, with the USDA estimating US producers planted 75.2 million acres to Soybeans, down 1.4 million acres from the March estimate. However the government estimated Soybean inventories as of June 1st to be 619 million bushels, which is higher than traders were expecting. The very bearish Corn figures sent prices down the 30-cent limit, as well as causing both Soybean and Wheat prices to tumble. Many traders are questioning the accuracy of the USDA figures, and many are looking for possible revisions in upcoming reports. But for now, market participants will likely begin to focus on the weather forecasts to see if Mother Nature will also aid in helping to replenish tight inventories this coming season.
Technical Notes
Looking at the daily chart for November Soybeans, we notice the market closing well off the session's lows, as buyers emerged below 1300.00, based on the supportive USDA planted acreage report. Notice that prices successfully rebuked a test of the 200-day moving average which supports the longer-term bullish trend. The 14-day RSI has turned down, however, with a current reading of 35.91. There is a chance that November Soybeans might become range-bound for the near future, with major support found at the March 15th low of 1238.00 and major resistance seen at the contract high of 1411.25 made back on April 11th.
Mike Zarembski, Senior Commodity Analyst
