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Soybeans drift lower ahead of USDA data

07/10/2012 @ 8:58am

U.S. soybean futures are trading lower, stabilizing after closing at a new all-time high Monday.

Investors are reducing risk and taking some profits off the table after the recent rally in futures.

Soybean futures had rallied $2.80 a bushel or 20% in the past three weeks.

Chicago Board of Trade July soybeans are 11 1/4 cents, or 0.7%, lower at $16.53 3/4 a bushel. The new-crop CBOT November contract is trading down 9 1/4 cents, or 0.6%, at $15.38 1/2 a bushel.

"The day prior to the monthly supply/demand report from U.S. Department of Agriculture is bringing a round of profit taking with it," Brian Hoops, president of brokerage and advisory firm Midwest Market Solutions, wrote in a morning market note.

Investors are typically cautious about holding bets when going into USDA reports known for causing big price swings.

Analysts expect government forecasters on Wednesday to cut their yield forecasts for the U.S. soybean crop by 3.6% due to a drought in much of the Midwest, and to trim forecasts for soybean inventories, according to a Dow Jones Newswires poll.

A reduction in both yield and inventory projections could fuel worries about low supplies, while any forecast that strays from expectations could cause volatile price swings Wednesday.

Added pressure is seen from news spreading that the National Futures Association and Commodity Futures Trading Commission had frozen cash positions of moderate-sized futures brokerage PFGBest, analysts at advisory firm AgResource Co. wrote in a market note.

PFGBest clients are only allowed to liquidate their existing futures positions. "It is assumed that the firm holds a portfolio of agricultural futures positions and traders jumped ahead of the selling overnight," AgResource added in the note.

Yet weather and crop conditions remain the dominant feature in the market. Traders still acknowledge U.S. soybean production has no room for error in 2012, with U.S. inventories already forecast to dwindle to precariously tight levels by 2013.

Weather in the Midwest this week is not looking nearly as hot as the extreme heat experienced last week, but the below-normal to drought rainfall pattern looks to continue, according to meteorologists at Telvent DTN.

Investors are focused on pushing prices to levels that will ration demand in the face of smaller world supplies.

Meanwhile, the USDA on Monday lowered its condition ratings for the nation's soybean crops. The government, in a weekly report, said 40% of the soybean crop is rated in good to excellent condition, down five percentage points from last week. Grain traders had widely expected decreases of five to ten percentage points for soy ratings due to scorching heat across the U.S. Corn Belt last week.

In Iowa, 48% of soybean crops are rated good to excellent, down 11 percentage points from last week. Only 14% of Indiana's soybean crop and 20% of highest-rated soy crops in Illinois were rated good to excellent.

Managed funds expanded their net-long position in CBOT soybean futures 8% to 250,082 contracts in the week ended July 3, according to the CFTC.

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