What Does Support The Soybean Price?

| About: Teucrium Soybean (SOYB)

Summary

The updated USDA forecast turned out to be moderately positive for the soybeans.

The correlation between the soybean futures price and oil and corn prices shows that the current soybean price is balanced.

The money managers carefully turn to purchases.

Click to enlarge

USDA

I believe that the WASDE report of October 12 supported the soybeans market. Firstly, the USDA estimated the U.S. ending stocks of soybeans for 16/17 at the level of 10.74 million tonnes, which was lower than market expectations. Secondly, the assessment of the U.S. exports for 16/17 was upgraded to 55.11 million tons because of the strong external demand. It is worth noting that in the new season the USDA has been increasing the 16/17 U.S. exports forecast already for five consecutive months.

Click to enlarge

Source of data: USDA

The USDA has increased the 16/17 global forecast of soybean ending stocks by 5.19 million tons. It came as a surprise for the market. The increased ending stocks forecast concerned mainly the key exporters: the United States, Brazil and Argentina. However, the USDA did not increase the export potential of Brazil and Argentina.

Correlations

Earlier I've described a two-factor statistical model - a forecasting tool for the soybean futures price which is based on the oil and corn prices. Based on this model and the current oil and corn prices, I can state that the current soybeans price is almost perfectly balanced.

Click to enlarge

Click to enlarge

It also should be noted that a significant decline in oil and corn prices is unlikely.

The uncertainty, associated with the agreement on freezing the oil production between the OPEC and independent producers including Russia, which is expected in November, supports the oil price. The comments from the OPEC representatives offer hope even for the decrease in production that could potentially mean the Brent price level above $55.

The U.S. corn, in turn, is experiencing strong external demand which results in record rates of exports. In addition, the corn price seasonality also indicates a low probability of falling prices for the remainder of the calendar year.

The money managers

According to the last COT report, the money managers increased their net long position in soybeans by 7,902 contracts over the week ending October 11. Over the past week, the money managers bought 7,515 contracts. Thus, the behavior of the money managers does not indicate their intention to further reduce the long position on this market.

Click to enlarge

Source of data: Commodity Futures Trading Commission

It is worth adding that on the last week the money managers were also buying on the oil and corn markets.

Conclusion

In my opinion, the soybeans will stay in the range of $9.37 - $10 until the end of this year. However, the likelihood of the market being able to break through support is far below the likelihood of the market being able to overcome resistance. I believe, in this situation it is reasonable to consider the sale of put options.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.