Morning Futures Roundup

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Soybeans Rally to 6-month Highs

   Fundamentals
After a minor set-back last week, the bull market in Soybean futures has resumed its upward momentum, with new-crop November futures trading at 6-month highs. The fundamentals continue to look positive, with sharply lower production from South America and stronger than expected demand from China expected to increase U.S. export business. U.S. old-crop Soybean carryover was already running tight before the South American crop problems, and analysts are now expecting the USDA to lower its forecast for 2011/12 ending stocks to an uncomfortably tight 150 million bushels.

The low supplies going into this year's harvest are more worrisome given the outlook for U.S. Soybean acreage to remain steady, or perhaps even to decline this spring, as ideal early spring weather may have producers increasing Corn plantings to the detriment of Soybeans. Even if U.S. producers plant the expected 75 million acres to Soybeans, we will need to see ideal growing conditions this summer in order to match USDA trendline yields of 43.9 bushels per acre.

Even a decline in average yields of only 1 bushel per acre could cause the U.S. to potentially run out of Soybeans if prices don't rise high enough to significantly ration demand. Though new-crop November Soybeans have gained nearly $1.50 over new-crop December Corn prices since the start of the year, it may already be too late for a significant planting shift over to Soybeans this season, setting up a potentially volatile trading environment in the coming months.

   Technical Notes
Looking at the daily chart for the July/November Soybean spread, we notice prices breaking out to the upside once the July premium rose above 30 cents. In addition, the 20-day moving average (MA) has crossed above the 200-day MA, which is viewed as a bullish signal by many technical traders. The 14-day RSI remains relatively strong with a current reading of 59.58. However, there is a bearish divergence forming in the 14-day RSI, and this may portend a near-term price correction, which can be expected as traders square positions ahead of the potentially volatile USDA report on Friday. There appears to be some chart resistance near a 57-cent July premium, but resistance is not found above this area until just above the 80-cent level. Support is seen near the 200-day MA, currently near the 30-cent July premium level.

   
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