Hello Pro Farmer Members!
March and May soybean futures surged above $14.00 this week -- nearly $2 above the Jan. 30 low at their weekly peaks. With Brazilian crop estimates declining and concerns about the timely shipment of soybeans from the country on the rise, worries about active Chinese cancellations of U.S. soybeans have been reduced. Instead, there’s anticipation (an expectation) USDA will have to raise its export forecast and further tighten 2013-14 ending stocks, which are already projected to be tight at 150 million bushels. Soybean export bookings (exports + outstanding sales) are already 6% above USDA's 2013-14 export forecast of 1.51 billion bushels. That would suggest USDA's export forecast is currently 87 million bu. too low. Sure... USDA has 12 million bu. of "play" in the residual category, but the current export bookings pace suggests old-crop carryover could be halved if there aren't significant cancellations of U.S. old-crop soybean purchases. Obviously, old-crop carryover will end the current marketing year higher (much higher) than 75 million bushels. And obviously, there will be some old-crop bean cancellations. But China will continue to buy and take shipment of U.S. old-crop beans until they can guarantee a timely supply of Brazilian beans -- and that isn't currently the case.
Bird flu has caused Chinese crush margins to fall below breakeven, backing up supplies at ports. There were reports late this week that a northern Chinese port had stopped unloading soybeans because storage was full. This is something to keep a watch on, but Chinese industry sources don't expect much (if any) slowdown in Chinese imports of U.S. beans anytime soon given the aforementioned concerns with obtaining Brazilian supplies.
The market's job is to find a price that slows use (crush and/or exports). But we don't appear to be anywhere near that price. After all, the runup to the all-time high of $17.89 in 2012 triggered only a 1.8% decline in total use from 2011-12 to 2012-13. What makes anyone believe old-crop bean prices around $14.00 will significantly deter use?
While everything appears to favor bulls, I don't want you to get too "bulled up." After all, it's important to consider all factors -- bullish or bearish -- when making marketing decisions.
Markets typically top when everything looks bullish. And there are some potential red flags that can’t be completely brushed aside.
Funds are estimated to be long roughly 1 billion bu. of soybean futures. And open interest has surged on the price rally, signaling there have been a lot of new longs added on the rally. The last time the fund long position and open interest were this large, the market was putting in its all-time high.
The question is whether there’s enough incentive above $14.00 for funds to continue to pile money into the long side of the market.
That answer is likely to come from demand, specifically export demand. And that' means China and Brazil are the two near-term fundamental focal points.
Don't forget technicals. Rallies like this typically end with a relatively clear technical signal -- a key bearish reversal, exhaustion tail, blowoff top, etc. Thursday's wicked day of price action that featured a 60¢ trading range and nearly a key bearish reversal in nearby soybean futures was a potential warning sign. But the quick and sharp rebound in prices today signals bulls aren't ready to give up yet.
Get used to the increased volatility. With old-crop futures surging to contract highs this week, the odds of wild, unexpected price moves increase.
That's it for now...
... have a great weekend!
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