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NEAR-TERM MARKET FUNDAMENTALS: May soybeans rallied as much as 64 cents off of the February 4th lows to this week’s high before seeing significant selling yesterday. Traders indicated that funds and producers were sellers and there remains a concern for the bulls that both South America and US producers become more aggressive sellers at the same time that demand begins to slow. Gulf basis levels slipped 2 cents yesterday but remain high for nearby shipment. Most of the new interest is on Brazil soybeans and traders expect a significant shift away from US origin in the weeks ahead. There are plenty of acres available for planting this coming season with the sharp decline in winter wheat plantings, but corn and wheat followed soybeans lower in January, so there is not too much advantage for producers to move away from a normal rotation. On the contrary, there are some producers who have moved away from a normal corn, soybean, corn rotation in recent years to a corn on corn and then soybean rotation, so that soybeans were grown just once every three years. This worked out well on paper for a few years when ethanol growth supported corn values, but high fertilizer costs and weaker corn values of the past few years may cause producers to shift back to a more traditional rotation. This could result in more active soybean plantings than expected this year. In addition, areas of traditional double-cropped wheat/soybean acres could end up with just one full season of soybeans this year, which would result in higher yields for soybeans. Traders said that the market largely ignored a slightly better than expected January crush rate estimate from the National Oilseed Processors’ Association (NOPA) who pegged the crush at 162.4 million bushels in January. Soy oil stocks were pegged at 2.695 billion pounds, about in line with trade expectations. Weather remains favorable for South American crops. If we assume that producers will plant 1 million more acres this spring and also assumed a slight reduction in both crush and export for the coming year due to the surge in available supply from South America, a trend-line yield at 43.4 bushels per acre could cause US ending stocks to swell to near 410 million bushels, up from 210 million this year and 138 million in 2008.
TODAY’S GUIDANCE: The market has recovered from an oversold condition and the current rally appears to be a selling opportunity.
TODAY’S MARKET IDEAS: Selling resistance for May soybeans is 974 3/4 with 935 1/2 and 932 as support. Keep 894 1/2 as downside objective. July meal selling resistance moves down to 277.20 with 266.90 as support. July oil support is near 38.98 with 40.38 as next resistance. Consider entering bear put spreads in July soybeans such as the July 970/880.
