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NEAR-TERM MARKET FUNDAMENTALS: The upside break-out in the US dollar and fears that next week’s USDA planted acreage report will show higher planted area for the coming year helped to pressure soybeans yesterday. However, this news was partially offset by talk of a continued dockworkers strike in Argentina and expectations that the March 1st stocks report (also released next week) will show tight US supply. There was some talk that the strike may be settled which helped to pressure the market but this could not be confirmed and it appears the strike continued for a second day on Wednesday and is still in tact this morning. The weekly broiler report showed a continued expansion in the poultry business this year with eggs set for the week up 4% from last year which is the highest percentage increase since early 2008. This suggests improving domestic meal demand into the summer. The soybean market was the leader to the downside yesterday versus other grains with similar losses seen in both old and new crop contracts. Traders said that selling came from funds as well as from spreaders versus corn. The selling was credited to a sharp rally in the dollar along with sell offs in crude oil and other key commodity markets. Weather forecasts have added some heavier rain for Missouri, central Illinois and parts of the mid-South through the end of the week. One analyst noted that this may have triggered a reversal of the corn/soybean spreads which retraced some of the gains made by soybeans earlier in the week. The Census crush report this morning showed February crush at 153.8 million bushels which was right in line with trade expectations. Soybean oil stocks were 3.294 billion pounds which was below trade expectations and meal stocks were 700,463 tonnes which was well above trade expectations. This was the highest February crush on record. Weather looks favorable for the harvest in South America into the middle of next week. Weekly export sales will be released this morning and for old crop soybeans we need just 107,300 tonnes each week to reach the USDA projection.
TODAY’S GUIDANCE: If the strike is settled in Argentina soon, the meal market is looking at an enormous supply to absorb into the summer and the cheap prices in Argentina along with a strong US dollar could cause US stocks of meal to stay high and this would leave US crushers less inclined to hold the crush pace at a record level. We continue to believe that there are enough planted acres in play this year and that November soybeans have stayed at a high enough price level for long enough to see soybean planted acreage above 79 million acres for the 2010 season. In fact, a Farm Futures magazine survey to producers showed intentions to plant near 79.4 million. If so and we assume last year’s yield, ending stocks could come in at 475 million bushels from 190 million this year and 138 million last year. Given the Census crush data this morning, traders can look to re-enter long July oil/short July meal spreads as meal supply looks especially burdensome into the summer. In addition, oil demand could improve in the US with increased bio-diesel and China is already reporting losses of near half of their rapeseed crop (500,000 tonnes) due to ongoing drought in China. Open interest is down in meal from a March 15th peak and this suggests short-covering which is not a good foundation for an extended rally. Look for large planted acreage on March 31st which is likely to pressure November soybeans.
TODAY’S MARKET IDEAS: November soybean selling resistance is at the 935 3/4 to 939 level with some support at 918 1/2 and then 880 1/2 as downside objective. July meal selling resistance is still at 274.80 with close-in resistance at 270.50 and 246.60 as downside objective. July oil buying support is 39.15.
