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Soybean Rally Crushed By Bearish Planting Intentions

Wednesday, April 5, 2017

Today's Spotlight Market

Here are the actual figures from Friday's USDA reports:

U.S. Stockpiles as of March 1

Corn: 8.616 billion bushels (Actual) vs. 8.55 billion bushels (Estimate)

Soybeans: 1.735 billion bushels (Actual) vs. 1.68 billion bushels (Estimate)

Wheat: 1.655 billion bushels (Actual) vs. 1.62 billion bushels (Estimate)

Planted Acres

Corn: 89.996 million acres (USDA) vs. 91.03 million acres (Estimate)

Soybeans: 89.482 million acres (USDA) vs. 88.13 million acres (Estimate)

Wheat (All Wheat Varieties): 46.059 million acres (USDA) vs. 46.06 million acres (Estimate)

Fundamentals

This past Friday we had the release of the widely anticipated USDA Prospective Plantings report. While there were no huge surprises in the report, Traders were caught a bit off guard as to the potential planting intentions for Soybeans versus that for Corn. The USDA reported that U.S. producers expected to plant a whopping 89.482 million acres of Soybeans this spring, which were about 1.3 million acres above pre-report estimates and over 6 million more acres than last season. In contrast, U.S. Corn acreage is expected to fall just below 90 million acres which was at the lower end of the average forecast as well as over 4 million acres below 2016 totals. While most analysts expected higher Soybean and lower Corn plantings this year, very few expected that Soybean plantings would be nearly as large as Corn plantings especially with the Soybean vs. Corn price ratio declining since late last year. On top of this report, continued wet weather this spring, especially in the Southern regions, of the Corn and Soybean growing areas, could force producers away from Corn and shift to Soybeans if plantings are delayed. This could put further pressure on Soybean prices, especially if South American Soybean production estimates keep rising and are poised to gain additional export business once the harvest is completed. We are starting to see large speculative traders adding to existing short position in Soybeans although the net-short position is still rather modest. This leaves room for further speculative selling should further bearish fundamental news develop or if key support levels fail to hold.

Technical Notes

Looking at the daily chart for July Soybeans, we notice prices approaching a key support level at the August 2016 low of 940.25. We did notice that the downside momentum to accelerate once the previous support level near the 1000.00 level failed to hold as momentum based traders added to short position once 1000.00 was breached. While momentum is very weak as measured by the 14-day RSI, this indicator is now well within oversold territory with a current reading of 19.19. With the RSI nearing extreme oversold readings, the potential for a short-covering rally are not out of the question, particularly if we do have a successful test and bonce from the August 2016 lows. Near-term resistance is seen at the March 27 high at 989.00.

Mike Zarembski, Senior Commodity Analyst