The month of March could bring big surprises for the soybeans market. Why is that? Read further to discover if the market is trying to tell us something.
Starting off the first full week of March, the markets are in store for what could be a very active month. The USDA World Agricultural Supply and Demand Estimate (WASDE) is due this Thursday at 11 am to get the month started and finishing with the USDA Quarterly Grain Stocks and Prospective Planting report on March 31st.
Leading into the WASDE report, the average trade estimates are not looking for much of surprise on the US side of the balance sheets with a minor reduction of only 2 million bushels from February and Zaner Ag Hedge’s estimate of 405 million bushels, down 15 million. The bigger question and potentially a market mover will be South American production. Brazil is estimated currently at a record sized soybean crop at 104.0 million metric tons (MMT) with the average trade estimate increasing to 106.0 MMT and Zaner Ag Hedge’s 108.0 MMT. Argentina’s production is seen by the average trade to be near 55.2 MMT with Zaner Ag Hedge at 55.0 MMT for a combined Brazil and Argentina estimated production at 161.2 MMT by the average trade. This compares to 2015/16 estimated production of 153.3 MMT or 290 million more bushels. Yet the May soybeans finished the week of February 27 through March 3rd up 13’2 and November up 15’0.
The soybean market has truly been impressive and very hesitant to move lower in the face of such bearish fundamentals. Massive US crop in 2016, massive South American crop, potentially 90 million acres of soybeans in the US, record global stocks, bird flu, surplus feed sources, and the list goes on. I have been and still remain in the bear camp for soybeans but regardless of my reasoning for being bearish, I must respect the fact that this market has been very resilient in the face of this bearish news. Why is that? Is the market trying to tell us something?
As of Monday morning, the commitment of traders report has the traditional funds estimated net long 124,000 soybeans, 62,500 soy meal, and 25,500 soyoil (excluding some of the previous week’s activity) which compares to being estimated net long 156,000 soybeans, 58,500 soymeal and 88,500 soyoil on February 1st. Which compares to a change in corn of being estimated net long 8,000 on February 1st to an estimated net long 79,000 on Monday. It appears that managed money, while still long, has been feeling a bit more bearish as well with an estimated net long reduction of 33,000 soybeans.
Without the traditional funds running for the doors but also not aggressively buying; what else could be propping this market up? Year in and year out, the global appetite for soybeans has been growing. Since 2006/07, US exports of soybeans have trend line growth of roughly 85 million bushels per year and the USDA estimated 2017/18 export demand at the Outlook Forum to be near 2.125 billion bushels; up from 2016/17 export estimate of 2.050 billion bushels; gaining an estimated 75 million bushels, within reason of recent annual growth.
As estimates go, they are just estimates and are always up for revision down the road; the USDA is good for historically being on the low side of demand estimates. The 2016/17 marketing year projections in May 2016 started off at 3.925 billion bushels of total US demand and has since grown to the current estimate of 4.108. May of 2015 US demand for 15/16 started at 3.729 and has grown to the current estimate of 3.944. 2014/15 changed from 3.450 to 3.862, 13/14 went from 3.264 to 3.478. Going back to 2010/11; US soybean demand from the first estimate to final has grown an average of 104.7 million bushels; including 2011/12 and 2012/13 years where demand fell from the first estimate to final. Could the USDA being once again underestimating demand for the current and coming year?
Historically, there is a good chance they are underestimated once again, however they have already made dramatic increases from 15/16 to 16/17 and a recorded sized crop in South America may hold down any unexpected demand boosts for the US. Time will tell as this market struggles to find direction between the bears and bulls. The bearish list remains long and I remain in the bear camp but that is merely an opinion and we all know the saying about opinions. Maybe there is a hidden message when reading between the lines, maybe the shoe has just yet to drop. Ultimately, the market is never wrong.
The month of March could have some surprises along the way. Market volatility should be expected as traders navigate a series of USDA reports as well as the seasonality we are in. South America production, China demand, US acreage, bird flu, trade policy. There is an endless list of variables that play a role in the markets. We don’t know what the future has in store but most do know what they need for their operations to succeed. Given that bearish fundamentals pushed the markets to unprofitable lows, those bearish factors remain in play and a return to lows is not out of the realm of possibilities.
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