Field of soybeans starting to ripen in blurry background with one bean stalk in foreground. VStock LLC/ThinkstockPhotos

Soybean Outlook - Soybeans take bullish turn

Fundamentals still bearish but charts say the market can run.

Nothing has changed in the soybean market, yet everything has changed. The only constant seems to be uncertainty and confusion.

What hasn’t changed so far, are China’s buying patterns. Rumors swirl the government is getting ready to give the green light for importers to start booking cargoes from the U.S. again, perhaps by keeping the 25% tariff in place but reimbursing companies for the fee.

Even if it happens, it’s unclear how much U.S. exports would improve. If China starts buying now it would either have to cancel some purchases of new crop soybeans from Brazil already on the books or face a glut of inventories.

Inventories at Chinese ports are starting to come down but are still at fairly high levels. And crush margins there are terrible, hurt by the higher cost of Brazilian soybeans and very low soybean mean values.

The U.S. share of the Chinese soybean market in the past began dropping after February when the new crop supply out Brazil hit the pipeline. Those beans – and it looks like there will be a lot of them – have to go someplace, and that’s the trouble. Unless weather takes a turn for the worse in Brazil and Argentina, global inventories on Sept. 1 will be at an all-time high. U.S. soybeans out of the Gulf used to trade at a 25% to 30% discount the Brazilian originations. For February that discount is down to around 6%. 

If rules of supply and demand still apply in this crazy market, excess stocks mean lower prices, and it’s the root cause of the red ink farmers are suffering. 

And yet, take a look at my seasonal chart of July futures and the nearby futures chart. July made new highs this week and appears to be following the pattern of rising prices typically seen in more bullish years, when the market can keep running through the winter or longer. And prices on the nearby chart took out the July highs, trying to get above the 50% retracement that could open the door to more gains. 

To be sure, even fundamentals don’t say the market can’t rally. While my model puts average futures prices at just $9 (they’re currently around $8.60 for the first quarter of the marketing year) markets never stay average. This puts the projected selling range at $9.78 to $10.55. So perhaps the market is trying to make that move after spending time below average. 

Short covering from big speculators still bearish on soybeans could fuel gains, at least for a while. But it’s doubtful end users are going to be concerned about supplies without some major weather news.

Basis is at least strengthening though it remains much weaker than average. Farmers aren’t selling and any moves now should be made with July futures or HTAs, which still offer 6 cents a month carry before interest. While charts should be respected, if futures are at a level where you can make money, once Market Facilitation Program payments and hedges at higher values are considered, go for it.

The U.S. crop likely is smaller than USDA forecast in November, but projected inventories left over Sept. 1 still look large.

Brazil has some dry areas in the south but conditions overall in South America look favorable for a big crop.

Brazil’s soybean exports normally thin out in November as inventories dwindle, but Chinese demand propelled sales this year.

Export inspections in the first quarter of the 2018 marketing year are way below normal due to lack of Chinese buying. Tariffs upended the normal pattern of movement worldwide.

Soybean meal prices in China plunged to new contract lows when measured in dollars but margins for processors remain bad.

The ration of world stocks to use looks like a record if crops in South America finish as expected.

 

July futures moved above August and October highs, establishing a bullish pattern that on average generates additional gains.

Click the download button below for a pdf version that has complete fundamental, weather, futures and seasonal charts.

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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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