Wednesday, August 1, 2012
The condition of the U.S. Soybean crop continues to deteriorate, with the USDA reporting only 29% of the crop rated good to excellent, which is down 2% from last week, with the poor to very poor rating rising to 37%. Though timely rains in the next few weeks may help Soybeans, current weather forecasts are not predicting that much needed rainfall will be widespread the next several days.
The devastating drought in the central part of the U.S. has already severely curtailed Corn production, as high head and dry conditions occurred during the key pollination period. Now that the calendar has moved to August, many traders will turn their focus to Soybeans, which are now beginning to enter their critical growing stage. Current weather forecasts are not encouraging for Soybean producers, as the 6 to 10-day forecast is calling for above normal temperatures and below normal rainfall for areas just west of the Mississippi River, as well as Southern Illinois and Indiana. Current analysts' estimates are for average Soybean yields to be near 38 bushels per acre, which is well below the 40.5 bushels per acre estimate from the USDA in the July crop report. Even though Soybean futures are trading near historic highs, global demand continues to rise. U.S. Soybean exports continue to remain robust, as below average production out of South America last season left little competition for the U.S. for Soybean exports. With the potential for a below 3 billion bushel Soybean crop in the U.S., Soybean futures prices may need to move even higher to help ration demand and prevent a stocks-to-usage ratio from becoming negative.
Looking at the daily chart for November Soybeans, we notice prices gapping higher on Monday, after less than expected rainfall occurred over the weekend. Note how prices are holding above the 20-day moving average, after two tests of this indicator last week failed to draw prices lower. Momentum has fallen from overbought levels, and the 14-day RSI now reads a supportive 62.55. Last week's low of 1536.00 looks to be support for November Soybeans, with resistance seen at the contract high of 1691.50.
Mike Zarembski, Senior Commodity Analyst