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NEAR-TERM MARKET FUNDAMENTALS: The market saw an impressive upside break-out on Friday and with a positive tilt to outside markets, more buying emerged overnight to support sharply higher trade and a move to the highest level since June for nearby futures. Traders see dryness concerns for central Illinois and southern Minnesota as short-term supply factors which might be causing declining yield estimates from traders. Traders see another 1-2% decline in crop ratings for tonight’s weekly update. The rally overnight was especially impressive given the crop tour results from Friday afternoon. In the annual Pro Farmer crop tour, the average soybean yield estimate came in at 41.8 bu/acre as compared with the USDA estimate from the August report at 41.4. If we plug in this yield estimate and leave all the other numbers unchanged, ending stocks come in at 185 million bushels with a stocks/usage of 5.9%. This is up from the USDA August estimate of 155 million bushels. The tour did note that good rains would be necessary to support the higher yields and this is certainly in question. Rain events look active in the next ten days in the northern Corn Belt and in the southern sections of the Corn Belt and the northern delta but limited rains for the central part of the Midwest could keep crops in dry areas under stress. A sharp set-back in corn production this year might spark better demand for meal and December meal matched the March 31st contract high on Friday and surged to new contract highs this morning. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net long 129,790 contracts for soybeans, an increase of 50,535 contracts in just one week. Commodity Index traders held a net long position of 164,046 contracts, up 3,470. The aggressive buying trend from fund traders is seen as a positive short-term force. For Meal, Non-Commercial traders were net long 32,442 contracts, an increase of 15,087 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 49,500 contracts, up 22,737 contracts for the week. For oil, Non-Commercial traders were net long 9,792 contracts, an increase of 11,597 contracts for the week. The shift from a net short to net long position is seen as positive. After some choppy and lower trade early, November soybeans saw a major technical break-out to the upside on Friday and moved sharply higher on the day. Talk that yield could slip below the August USDA report helped to support the solid recovery and rally to higher on the day.
TODAY’S GUIDANCE: The weather is mixed to slightly positive and traders see even lower yield than the USDA in August as a serious threat. Bullish outside market forces and a return of aggressive fund trader buying in grains is also seen as a supportive force. Trend-following funds increased their net long position by nearly 50,000 contracts to 94,835 for the week ending August 23rd.
TODAY’S MARKET IDEAS: Buying support for November soybeans moves up to 1421 1/2 and 1409 1/2, with 1458 and 1498 as next upside objectives.
Soybeans: South American Rain in 6-10Day Key.
by Dave Hightower on January 13, 2012
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
NEAR-TERM MARKET FUNDAMENTALS: Outside market forces are looking slightly negative today. A weak demand tone for the USDA clashed with short-term positive demand news to helped the market see a strong recovery off of the early lows yesterday. March soybeans were down 53 cents early in the session yesterday but managed to rally 37 1/4 cents off of the early lows to late session highs. The USDA data was mostly bearish across the board but especially for the corn market and a limit-down move in corn helped to drive soybeans sharply lower. US soybean production came in at 3.056 billion bushels, up 10 million from previous estimate. Ending stocks, however, were pegged at 275 million bushels as compared with trade expectations looking for 233 million. Exports were revised lower by 25 million and crush down by 10 million. Without a serious drop in South America production, the USDA was in a position to drop usage and the increase in production and lower usage fell directly to the bottom line. World ending stocks for the 2011/12 season came in at 63.43 million tonnes as compared with 64.54 million last month. December 1st soybean stocks came in at 2.366 billion bushels, up 42 million from trade expectations. Weekly export sales for soybeans came in at 434,200 tonnes. Sales of 296,000 metric tonnes are needed each week to reach the USDA forecast. Net meal sales came in at 47,600 tonnes which was below trade expectations and compares with sales of 99,000 tonnes needed each week to reach the USDA forecast. Net oil sales came in at just 1,100 metric tonnes which was also lower than expected. As of January 5th, cumulative soybean oil sales stand at 31.7% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 42.0%. Sales of 10,000 metric tonnes are needed each week to reach the USDA forecast. On top of the weekly sales, private exporters reported to the USDA export sales of 414,000 tonnes of US soybeans to unknown destination. The USDA news was negative but traders believe that the market would not be down as much as it was except for the outlook for improving weather in South America in another 8-9 days after heavy rains in the past few days. Traders will be closely monitoring weather forecasts in South America for direction as a return to a hotter and drier condition could cause further production losses while a shift to a wetter pattern would hold down losses. South Korea bought 55,000 tonnes of South America meal. India vegetable oil imports for December totaled 669,000 tonnes, down 22%. China officials want to raise self sufficiency in edible oils with an output target for domestic production at 24.4 million tonnes by 2015 from 20.1 million tonnes this season.
TODAY’S GUIDANCE: The South America crop conditions improved with the soaking rains this week and there is follow-up rains in the forecast for late in the 6-10 day period. This rain window will be important and could mean the difference between continued weak demand for US soybeans or a jump in demand as buyers shift away from South America if production concerns pick-up.
TODAY’S MARKET IDEAS: The technical action is weak. March soybean resistance is at 1191 1/4 with 1174 3/4 and 1158 as support. Look for 1158 to 1191 range for now.