Wednesday, January 4, 2017
Today's Spotlight Market
Next week begins the yearly commodity index "rebalancing" where funds tied to the major commodity index adjust their portfolios to match the weighting of the particular index. The grain complex is expected to see net-buying during the "re-balancing," with Wheat futures in both Chicago and Kansas City expecting to see the most buying on a percentage basis due to the market's poor performance in 2016. Only Soybean Oil is expected to see some net-selling next week from the index funds, as it was the best performer of the Grains and Oil Seeds complex last year.
Soybean futures led the Grain markets higher in 2016, posting gains of over 14% last year. Strong demand, especially out of China, likely was the key factor to rising Soybean prices during a year where both Corn and Wheat prices were in the red. Now that 2017 has arrived, traders are asking whether Soybeans can repeat the gains of 2016 or whether Bean bears will regain the upper hand. Relatively high Soybean prices when compared to Corn and Wheat are expected to encourage producers to increase planting this season, which could lead to a sharp increase in Soybean stocks by this fall. While we are in the early part of winter here in the U.S., market participants are turning their focus to weather forecasts for both Brazil and Argentina to help get a reading on the potential size of the South American Soybean Harvest. While there have been some weather concerns -- too dry in parts of Brazil and too wet in Argentina -- overall weather condition have been favorable for potentially record Soybean production out of South America this market year. The demand side for Soybeans still looks positive, with Chinese export demand expected to increase this coming season. However, recent gains in the value of the U.S. Dollar may end up hurting U.S. Soybean exports as buyers look to "cheaper" producers such as South America for their purchases. This scenario could lead to increased production from the U.S. but slower export sales, which could exert pressure on U.S. Soybean prices in 2017.
Looking at the daily chart for March Soybeans, we note the market is still in an uptrend from the March 2016 lows, despite the 80-cent per bushel sell-off from recent highs. However, prices have now fallen below both the 20- and 200-day moving averages and the 14-day RSI has turned weak, with a current reading of 39.59. The next support level looks to be near the November 2016 low of 983.75, with chart resistance seen near the December 28 high of 1028.25.
Mike Zarembski, Senior Commodity Analyst