Soybean market eyes drier weather outlook in Argentina

$15.30 is the next upside target for soybeans, analyst says.

The March soybean futures contract has turned lower, this morning, after hitting new contract highs.

Chinese Dalian soybeans were up 0.14%, Soymeal up 2.87% and Soyoil up 0.25%. Malaysian Palm was down slightly. Soybean open interest as of January 12 was up 2,051 contracts, soymeal down 1,703 contracts, and soybean oil up 1,957. 

Near term market fundamentals 

With the possibility of significant production losses in Argentina and continued strong demand from China, world and US soybean stocks could continue to tighten in the months ahead. Inflation and global food security concerns are other factors that could offer support, as the market's job at this point is to move to a high enough level to reduce demand. Unless Chinese demand slows, U.S. ending stocks could slide well below 100 million bushels and ending stocks and the stocks/usage ratio could end up at record low levels. 

March soybeans and March soymeal contracts closed sharply higher on the session yesterday, as the Argentina weather forecast was quite threatening. The USDA updates were slightly supportive against expectations, but the Argentine forecast seemed to spark aggressive buying. 

READ MORE: Scarce rainfall for Argentina's main-producing regions

In the report, U.S. 2020/21 soybean ending stocks were lowered to 140 million bushels from 175 million the December report. This was near the average pre-report estimate of 139 million but was down from 525 million last year and 909 million two years ago. The stocks/usage ratio has fallen to 3.1%, which is the second tightest on record (back to 1966). Production was lowered to 4.135 billion bushels. This was well below the average pre-report estimate of 4.456 billion and near the low end of expectations ranging from 4.103 billion to 4.197 billion. Yield was lowered to 50.2 bushels/acre versus a range of expectations from 49.9 to 51.0. Production was lowered by 35 million bushels, crush was revised up by 5 million, and exports were revised up by 30 million to a record 2.23 billion. 

Brazil's 2020/21 soybean production was left unchanged at 133 million tonnes. Argentina's production was lowered to 48 million, but many traders are adjusting their estimates to well below this level. World ending stocks were lowered to 84.31 million tonnes from 85.6 million previously. This was above the average pre-report estimate of 82.8 million but down sharply from 95.39 million tonnes last year and 112.80 million tonnes two years ago. 

US Soybean stocks as of December 1, 2020 totaled 2.933 billion bushels, which was close to the average estimate. December 1, 2019 stocks totaled 3.252 billion bushels.

Market Ideas

U.S. ending stocks are currently estimated at 140 million bushels, but the export data so far this season suggests the potential for a 50-100 million-bushel increase in the export forecast in future USDA reports. Taking out the $13.96 3/4 key resistance for March soybeans leaves $15.30 as the next upside target. March Meal support comes in at 455.60 and 453.90, with 478.00 as the next target. March Soybean Oil resistance is at 43.66, with 41.53 as support.

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