Soybeans have a story, analyst says

Market rally could be capped by Brazil's expected record-high plantings.

There is still mostly dry weather expected for Iowa and much of central Illinois for the next five days.

However, the seven-day forecast models call for 1.00" to 2.00" of rain for much of Iowa and Illinois. Traders are still concerned about yield damage this week, with high temperatures and very little rain over the last two weeks for nearly 70% of Iowa, Illinois and Indiana.

Traders are questioning whether the rain will be too late to have much impact.

Declining crop conditions, hot and dry weather in the central Midwest for a few more days, and continued strong buying from China have helped support the market, so far this week. The buying pushed prices up to their highest level since March 4. Heat and dryness in the late pod-fill stage could cause yield forecasts to be adjusted lower.

On Wednesday, private exporters reported to the USDA export sales of 400,000 metric tons of soybeans for delivery to China during the 2020/2021 marketing year.

The marketing year for soybeans began Sept. 1.

On Tuesday, exporters reported sales of 204,000 tonnes of U.S. soybeans to China and 142,500 tonnes to unknown destinations.

However, news of higher output from Brazil may limit the advance for soybeans, unless traders see a much smaller yield than the recent Pro Farmer crop tour.

Another factor that supported the market was a successful teleconference between U.S. and Chinese trade officials regarding the Phase 1 trade deal. Weakness in the U.S. dollar added to the positive tone as well. 

Brazil's 2021 Production

Brazil expects its soybean output reach a new record, according to Conab, the country's governmental agency. The agency also discovered an additional 14.4 million metric tonnes from crops in the past seven seasons. Conab said that a data review since 2013/14 showed the extra volume, after a large gap between supplies and stockpiles emerged in 2017/18. Estimated output for the most recent season was increased to 124.5 million tons from 120 million previously.

Output in 2020/21 may rise 7.2% to a record high 133.5 million tonnes, with exports increasing to a record 87 million tonnes.

The plunge in Brazil's real against the dollar is boosting the nation's competitiveness in the global market and probably will bolster farm profit next season, Conab said. Some Brazilian producers are selling soybeans two years in advance, as the weakness in the Brazilian currency has sent local prices to record highs, near 132.8 reals per 60-kg bag versus 80 reals earlier this year. There are indications that producers have already sold nearly 43% of their 2020 crop versus 16% at this time last year. 

Tighter than expected vegetable oil stocks have been supporting soybean oil prices. But with Indian soybean production expected to jump in the coming year, some of that tightness could ease. Traders also expect palm oil production to recover in Indonesia and Malaysia.

Market Ideas

 With funds already holding a hefty net long position, it will be important for the market to receive a steady flow of positive news to see significant follow-thru to the upside. The technical action is positive, but the market is getting a bit overbought, and the outlook for another record crop from Brazil is a limiting force. Traders are watching for support, for November Soybean futures, at $9.06 3/4, with $9.24 3/4 and $9.26 1/2 as resistance.

December meal futures need a close above $302.10 per short ton, to expect a resumption of the uptrend. December oil remains in a positive uptrend, with $32.53 as next resistance. A lower close after nearly reaching this target could sour the chart. 


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*** This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.

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