Morning Futures Roundup

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Soybean Prices Fail to Recover Despite Hot and Dry Weather Forecasts

   Fundamentals
Soybean futures prices have attempted to rebound from recent lows, with some traders beginning to focus on weather forecasts calling for warm and dry conditions in the eastern and southern regions of the U.S. The Climate Prediction Center in its 8 to 14-day outlook is calling for above normal temperatures throughout the Midwest, with well-above normal temperatures expected in central and southern Illinois, eastern Missouri, southwest Indiana, and the western parts of Kentucky and Tennessee.

The warm weather outlook and below average precipitation forecasts have sparked some concerns that any yield benefits from early planting may be overridden by less than stellar growing conditions early in the season. Dry conditions are being seen in parts of the Midwest, including most of the state of Minnesota and northwest Iowa.

There are also some dry patches in parts of central and southern Illinois, which may be more of a concern for Soybean traders given the state's importance to U.S. Soybean production. It is not uncommon for market participants to price a weather "risk premium" into grain prices, and given the tight global supplies of Soybeans this season, it is imperative that the U.S. produce a bumper crop.

China has been a big Soybean buyer this year, with the country's imports up 22% from last year. The jump in Chinese imports has surprised some traders, especially given the slowing growth numbers out of the world's most populous nation. But with the South American harvest disappointing and given tight supplies, Soybean buyers were not taking any chances of being caught short supplies if U.S. production did not live up to expectations.

The big caveat for Soybean prices may end up being how many additional acres U.S. producers will dedicate to Soybean production, especially from "double-cropping" Soybeans after the Winter Wheat harvest, which is running ahead of schedule. Should we see 1 to 2 million additional acres of Soybeans planted this season, this additional production could make the difference between very tight supplies and mostly adequate supplies as the marketing season comes to an end.

   Technical Notes
Looking at the daily chart for November Soybeans, we notice that prices have fallen below the up-trend line drawn from the December 2011 lows. In addition, prices are now poised to test the 200-day moving average, which if taken-out to the downside, may spur further long liquidation selling. The 14-day RSI is weak, with a current reading of 37.09. The 200-day moving average, currently near the 1266.50 area, looks to be support for November Soybeans, with resistance seen at the May 17th high of 1318.00


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