Will High Prices Help to Ration Soybean Supplies?
Friday, September 9, 2011
It does appear that US Soybean supplies will remain tight going into 2012, even if average yields do not fall significantly from current estimates. Some traders who expect Soybean futures prices to remain stable or move higher in the coming weeks may wish to consider exploring selling put spreads in Soybean futures options. For example, with November Soybeans trading at 1413.00 as of this writing, the October 1360 puts could be sold and the October 1310 puts purchased for a credit of about 5 cents, or $250 per spread, not including commissions. The premium received would be the maximum potential profit and would be realized at option expiration in late September should November Soybeans be trading above 1360.00.
Fundamentals
Uncertainty surrounds the US Soybean crop this year, as analysts and traders struggle to determine if beneficial temperatures and rainfall in August helped the maturing crop recover from above average temperatures in July. Many traders are anticipating that the USDA will lower average Soybean yield estimates in the upcoming USDA September Crop Production report from the 41.4 bushels per acre seen in the August report. Even a slight cut in average yields could make a big difference in US carryout totals in 2012. A drop of only 1 bushel per acre could put ending stocks/usage ratio to record lows! In this case, Soybean prices would need to rise to help ration demand. However, Chinese demand for Soybeans is expected to increase, with some analysts expecting Chinese Soybean imports could near 60 million tons, as demand for Soy meal for livestock feed is expected to increase by just under 10% next year. In the US, Soy meal demand may decrease, as poultry production is expected to decrease due to high feed prices. It now appears that Mother Nature may get the final say as to whether US Soybean supplies will be "extremely tight" and force prices sharply higher, or merely "tight" and prompt a return to choppy trading conditions going into 2012.
Technical Notes
Looking at the daily chart for November Soybeans, we notice prices have "corrected" from the contract highs made last week, but they seem to have found some support near the 1408.00 to 1412.00 area. Even with the correction, prices remain above the 20-day moving average, which is currently residing just below 1400.00. The current sell-off may be part of a "bear flag" chart formation, which would be confirmed should we see an upside price breakout on higher than average trading volume. The 14-day RSI has moved to a more neutral level, with a current reading of 55.99. Support for November Soybeans is seen at the August 25th low of 1384.00, with resistance found at the contract high of 1465.00.
Mike Zarembski, Senior Commodity Analyst
