Supply Concerns Push Up Soybeans

WRITTEN APRIL 20, 2009

It has been interesting to watch Chicago soybean futures rally over the past month, testing their highest levels since late January. Concerns about tightening old crop U. S. bean supplies amid rumours of stepped up Chinese buying helped send futures higher. Traders are also noting disappointing Argentine soybean yields, keeping importers headed to the U. S. for diminishing bean supplies.

Nearby May beans challenged key overhead resistance into US$10.50 to $10.70 per bushel bu territory before pulling back at the time of writing. Technically, beans are looking overbought with the market now touching the upper end of the Relative Strength Index. Beans are due for at least some corrective setback, but it seems that $10.50 per bushel is the flame attracting the fly.

ENERGY AND OILSEED DIVERGE

Over the past year and more, we have made constant reference to the seemingly tight pricing relationship between oilseeds/vegoils and the energy markets. They seemed to move in lockstep for much of the time.

There have been exceptions, when paths of the two commodities have temporarily diverged for short periods. One of those periods came following the Xmas holidays when drought worries in South America came to the market fore and rallied the soybean market independently of crude oil. But by February, the markets realigned.

In today’s market, we have again seen divergence over the past two weeks. Is this something lasting or again only temporary? Honestly, no one can know, but it remains most interesting to watch if we are indeed witnessing the potential breakdown of one of the more solid price relationships we have seen in years. My feeling is they will eventually work back together. But for now at least, bullish soybean fundamentals are asserting control.

U. S. old crop bean supplies are draining lower while the demand picture remains strong. Meanwhile, crude oil continues to flirt around the $50 per barrel level, up from the mid-to low $30s but struggling to exert a sustained upward tack as demand during recessionary times remains slack and there is lots of crude in storage. If beans are able to rise above $10.50, and the technical crowd jumps into the pool with both feet, this spread could really widen out.

Also note the Commitment of Traders report (see the graph), which shows the large speculative players re-entering the long side of the CBOT soybean futures market. The position is not abnormally large at this time, but the trend is increasing.

Within the soy complex, soyoil currently serves as an upside leader. Soyoil futures managed to break away from the influence of crude oil futures, energized by strength in world vegoil markets as Malaysian palm oil has soared higher.

CANOLA BURDENED BY LARGE SUPPLY

The canola market is of course influenced by soyoil prices, but our market remains restrained by the fact that canola supplies are not short. Canola’s price response to upward momentum in soybeans will be laggard. If beans want to run, canola will move higher, but the widening spread will widen further.

It is also interesting to note that as by-product value of oilseeds (oil/meal) continue to appreciate — in this case out-legging the canola seed market — board crush margins are looking increasingly attractive, making canola seed look comparatively cheap.

These factors continue to suggest a near-term bullish trend for the oilseeds. Canola though remains sideways bound, but is tentatively moving towards a test of the upper boundary of a trading range that has existed since harvest. We’ll have to watch this situation closely. It’s hard to say if we should be filling ourselves with a new sense of bullishness or getting ready to sell.

Mike Jubinville runs Pro Farmer Canada from Winnipeg and can be reached by e-mail at [email protected],or through his web site at www.pfcanada.com.

Pro Farmer Canada is for informational purposes only. The publisher and its agent or employees shall not be liable for any loss or damage suffered by any person as a result of reliance on any of the contents contained within these products; whether such loss or damage arises from negligence or mispresentation or any act or omission of the publisher or its agents or employees.

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