A rally of almost a buck a bushel over the past month provided opportunities for growers to price more 2013 soybeans at $13. But a bearish key reversal lower from 10-week highs and chart resistance has the future of the rally in question. So it's time to draw a line in the sand, at least for a seasonal downturn.
In years of normal production, the market normally begins its winter stall in December, as potential of good production in South America becomes more likely. That scenario certainly seems to be playing out this year, with no signs of real stress in either Brazil or Argentina, and production estimates on the rise.
The January chart suggests the $12.90 level should not be breeched on a closing basis without triggering more sales. That's where both the 50-day and 100-day moving averages are close to a crossover, with the bottom of the November rally channel nearby as well.
Soybean rally shows some cracks
Just the whiff of slowing export demand did the market in on Monday. Export inspections were very good, but not at the extreme levels the market's gotten used to. News of a couple of cancellations the past couple of weeks from China also played into this narrative.
USDA could both give and take with its Dec. 10 supply and demand report. On the plus side, a reduction in carryout due to stronger than forecast exports appears all but inevitable. I plugged a 20-million bushel cut into the estimates I provided wire services earlier this week, and my forecasting model calls for an even bigger drop of 40 million bushels ultimately, given what we know now. Good soybean meal prices continue to support crush margins, keeping basis above option for January futures.
Deferred contracts still trade at a discount, and that's part of the problem. While the inverted market doesn't rule out rallies by the back end, Brazilian farmers have forward priced less of their crop this year, which could ultimately bring more hedge pressure to bear on May and July.
Shipping out a massive South America crop won't be easily, and the same kind of delays we saw in 2013 could be repeated this coming year. Brazil's economic troubles appear to be deepening, which could lead to more labor unrest and shipping delays, especially as the country gears up for the World Cup. However, the market's second wind here in the U.S. may not come until a bout of profit taking that makes it preferable to sell cash now and buy paper later this winter.
As for 2014 crop soybeans, I'm not a big fan of early sales. But November 2014 is offering a $1.50 profit, not bad in most years, and more than is likely at harvest if growers add 2 million acres of more in the coming spring.
You can download the complete report using the link below.
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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