Is the Historic Soybean Bull Market on its Last Legs??
Today’s Spotlight Market -?Looking ahead to the 2014 Soybean crop, current favorable weather conditions in South America favor the potential for a record harvest this season, which should help alleviate current tight supplies. However, bullish traders will note that the key pollination period will not occur until February, so there is no guarantee that current estimates will hold. Looking at the potential for the U.S. Soybean crop next season, we note that new-crop November 2014 Soybean prices are just over 2 ? times that of new-crop December Corn, which is about the average price ratio of the past 35 years. Although with new crop Corn trading well below $5 per bushel, there is some talk that producers may dedicate more acreage towards Soybeans next season, but the price ratio for the 2014 crop is yet to price in this scenario.
Fundamentals -?Soybean futures received some bullish news last Tuesday, as the USDA lowered its estimate for U.S. ending stocks by 20 million bushels to 150 million bushes. This figure was below average estimates for closer to 155 million bushels, and if true, would lower the stocks to usage ratio below 5%. It appears that the appetite for U.S. Soybeans remains strong, with the USDA raising its estimates for U.S. exports by 25 million bushels.? However, as we move into 2014, traders must be prepared for a potentially record-breaking Soybean harvest out of South America. The USDA remained conservative in its estimate for Brazilian production at 88 million tons. This was just over 2 million tons below the current Brazilian government estimate at just over 90 million tons. The USDA did raise its estimate for the size of the Argentinean Soybean crop to 54.5 million tons, although this was also below traders? forecasts. Current tight Soybean supplies have moved the futures term structure into a backwardation through the November 2014 futures, which is the first ?new-crop? month for next year?s production. Bull spreads have been widening since August, but may see some pressure in early 2014 once the South American crop is ready for harvest. This would be especially true if China, the world?s largest Soybeans importer, decides to cancel some U.S. purchases in favor of South American Beans. ??
Technical Notes – Looking at the weekly continuation chart for Soybean futures starting with calendar year 2000, we notice prices have been in an overall bullish trend since the end of 2001, when the front month futures were trading below 420.00 per bushel. Since that time, we have seen Soybean prices rise over four-fold and reach all-time highs in 2012. If we look at the most recent leg of this bull move which began in the latter half of 2006, we notice that the uptrend line drawn from the 2006 lows has been tested recently.? A weekly close below 1186.50, should we see it, may signal this latest bullish phase has come to an end.?
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