Soybean farmers are now the most short they’ve been since October of 2012. This means that U.S. farmers who are able to take advantage of South American misfortune stand to have their best year in quite awhile. There’s no question that South American production is not going to pass muster. However, in an interesting twist of fate, the same weather that kept us out of the fields this spring is going to be a boon to late planted soybeans heading into a La Nina fall growing season. Therefore, we view this last leg up in the soybean market as a selling opportunity rather than the emergence of a new trend.
The U.S. grain markets are some of the biggest, deepest and most watched markets in the world. While there’s always argument over the value of a stock or currency, the laws of supply and demand work to a much greater extent on perishable goods like grains. The limited shelf life and annual production variables combine to provide the grain markets with consistent annual windows of opportunity. This week, we’ll be discussing the last of the year’s major seasonal trades within the grain markets along with what to expect into the harvest season.
The soybean meal futures have been sliding sideways to lower for the last seven months. Historically, this makes all the sense in the world as the harvests are in and supply and demand become the driving factors of price rather than weather and growing concerns. The shift towards planting and summer markets changes the equation and brings us to where we currently stand. July soybean meal has finally executed the test of its support and finds itself strengthening heading into its strongest seasonal period.
There are two issues to look at this week in the soybean futures market. First, I’d like to discuss the seasonal pre-planting characteristics of the soybean market, how they’ve changed over the last ten years and what the current situation looks like. Secondly, I’d like to use this setup to explain the difference between market forecasting and trading program design with a special focus on soybeans and the market’s natural fear based reactions.
This is a critical point in the soybean futures’ seasonality due to the approach of the Brazilian harvest and the spring planting intentions here in the U.S. Brazilian soybean production has been expanding at unprecedented levels, setting new production records in ten out of the last twelve years. A final harvest number near projections would also keep that streak rolling. The Brazilian harvest has just begun but recent rains have already dampened the early harvest projections above 95 million metric tons(mmt) and are currently suggesting a number closer to 91mmt.
The entire soybean complex had been holding its collective breath ahead of yesterday’s USDA reports. As is typically the case, it quickly became a case of, “Buy the rumor. Sell the fact.” That said, yesterday’s post report action created a strong enough reversal downwards and away from the building overhead resistance to generate a COT Sell Signal. Normally, our chart would include a fourth pane labeled, “Short-Term Market Momentum.” However, for clarity’s sake, we left that pane out of the chart to focus instead on the commercial trader action illustrating their sensitivity to price.