Soybean market is overbought
Soybeans: China announced it will expand soybean reserves from 6 to 7.25 million metric tonnes this week. In addition, we were surprised to see they are not done buying old crop yet. The other issue here is how low can this Argentina crop get? Will USDA have to lop off another 5 mmt off their current Argentina estimate?
Soybean Planting: Last week we were 3% planted. We would guess Monday's report will show a moderate 6% complete. The five year average will be 11% done. It is too early to be concerned about soybean planting.
Outside Money Positions: Up until last week the Trading Funds had been buying for seven weeks straight. The week ending 4/28, they sold 13,623 contracts. We would imagine from Tuesday to today they bought all that back and increased their net long position. Index Funds, the long-only traders, had been doing the same thing. They bought for several weeks in a row but sold last week. Overall, the clear trend of buying by Outside Money is bullish.
Direction: Friday posted new highs for uptrend. It also broke the April and January highs. While we have suggested a better case for a spring high for corn we still can not call it for soybeans. We still expect this market to hang up here into mid planting. We do remain bearish for a long term move into harvest but for now, this remains an old crop driven market. Old crop is bullish for nowâ€¦Rich Nelson
Trade Idea(s): (05/01) Buy July 1065, risk 1045, objective 1125. Closed 1091. Option Strategy(s): (04/16) Bought July 980 put 40, risk to 20, objective 75. Closed 28 3/4.
Soybean Technical Commentary: The bean market rallied hard in the last 15 minutes of trading Friday and closed above the Jan high at 1076. We have to go back to Sep 2008 to find resistance now at 1150. The market is overbought though, so it could correct very quickly.
Vital Technical Indicator: the next projected major turn day for soybeans is May 13, soybean meal is May 12, and soybean oil is May 11.
Hogs: Generally these viral/disease problems are more of an export issue for US meat markets. US consumers are generally not too concerned about safety of their meat, unlike the rest of the world. The good news is if export bans are lifted, that means less meat for US consumers are therefore higher prices. We cannot say we will get the Mexico pork market back yet because their consumers have made significant changes. However, if Russia and China and the smaller players get rid of their bans we can likely get back half the down move. That is a great story but until that happens we will not be buying speculatively. Today we had conversations with two people connected to the wholesale pork arena and two people involved with the financial picture of the pork industry (funds that invest in pork companies). The wholesale pork guys told a gloomy picture and said nothing is moving. The financial guys were concerned about new outbreaks. The net result is we still feel this market is clearly undervalued. However, for the short term it is still trying to find proper value.