Long fund position could be bearish for CBOT soybeans

(Lisa Guenther photo)

CNS Canada — Old-crop soybean futures on the Chicago Board of Trade moved sharply lower during the week ended Wednesday, with new-crop values seeing less severe losses.

The narrowing in of the old crop/new crop spread was a feature of the week’s activity. Going forward, the trend looks to bearish, according to analysts.

Values came under pressure amid reports of Chinese cancellations for old-crop U.S. soybeans, and fears that even more defaults could continue to weigh on the market.

“Right now, we’re pretty much at two million tonnes” of Chinese cancellations, said Sterling Smith, analyst with Citigroup in Chicago. “Seeing that number to three million tonnes would not surprise me in the least.”

With the South American production situation looking better, and reports that supplies from the region are moving into the U.S., the market could move down to the US$14 per bushel level, he said.

There’s also the possibility of fund selling going forward, as “we have an overabundance of funds long here, and that can certainly lead to some liquidation,” according to Smith.

But the news is not all bearish, as the market is going to need to build in planting and weather risk premiums ahead of the growing season in the U.S., he noted.

Corn futures were firmer during the week, as concerns about slow planting progress in the U.S. were bullish. The U.S. Department of Agriculture reported that as of Sunday (April 20), six per cent of the U.S. corn crop had been planted. That compares with the five-year average of 14 per cent seeded.

Forecasts calling for more unfavourable wet and cold conditions in parts of the U.S. Midwest in late April were also supportive, as they could further delay planting and reduce yield potential for U.S. corn crops.

But the late planting shouldn’t be as much of an issue as it is, as farmers still have plenty of time to get the crop planted, Smith said.

“Ideal planting time for a lot of the U.S. crop is May 1 through 10, which is still a good healthy week, week and a half away,” he said. “And farmers can put this in very quickly.”

The market will continue to watch the weather situation and planting progress going forward, Smith said, adding that funds will likely dictate where the market goes.

“In the corn market, we have a very large long position coming into planting, he said. “If planting goes well, we could begin to see a bigger amount of liquidation.”

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

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