Soybean is one of the key agricultural commodities that has seen the substantial "spring price rally" in the current year. For the period from March 2 to April 20, the price for soybean CBOT futures rose by $1.5. Now the price dynamics has stabilized and the market is determining the next step. In the meantime, the "bears" and the "bulls" have their reasons to believe in themselves. Let's try to assess their chances of winning.
In addition to the factor of political instability in Brazil, the weather turmoil in Argentina supported soybean. According to recent data, the torrential rains threaten to reduce the yield of soybean in Argentina by 3 million tons. In addition, extremely humid weather creates logistical problems complicating the delivery of the crop in ports for shipment. By mid-April, only 15% of the yield was harvested in Argentina and the continuing rains could cause even more damage.
It is noteworthy that the USDA not only did not reduce the yield estimates for Argentina in its updated forecast of soybean production for 2015/16, dated April 12, but even increased it to 59 million tons (+0.5 million tons m/m). It is obvious that the events in Argentina have not yet progressed beyond the acceptable risk.
In March, Chinese imports of soybean increased by 36% YOY. In total, for the first three months of this year, the imports of soybean to China increased by 4 percent to 16.26 million tons. In its turn, the USDA increased its assessment of the prospects for soybean import in China up to 83 million tons, which by 6 percent increases the indicator of 2014/2015.
China is the biggest consumer of soybean in the world and its trading activity has always provided a strong impact on the market. It should be noted that seasonally from April, the share of deliveries of soybean from the United States has decreased in favor of Brazil and Argentina. Moreover, a comparison of import sources in 2014/2015 and 2015/2016 indicates that the growth of China's need of soybean is being met mainly by providers from Latin America. So American suppliers of soybean have little joy from the growing appetites of China.
According to NOPA, the crush in the United States in March amounted to 156.690 million bushels. It is 6.1 million lower than last year. The cumulative total of crush from the beginning of the calendar year has been falling behind the figures of 2015 that indicates the weakness of domestic demand.
Soybean stocks for all positions in the United States totaled 1.53 billion bushels on March 1. This is 15% higher than the indicator on the same date in 2014/2015 and 54% higher than in 2013/2014.
At that, the USDA estimates the soybean planted area in 2016/2017 in the United States is at the level of 82.2 million acres, which is only 2.4 million acres below 2015/2016 and is the second record indicator in all of history. So, the United States already have the record soybean stock and a distinct perspective to make them even bigger by autumn, harvesting the new yield.
Source of data: USDA
According to the International Grains Council forecast, the global production of soybean in 2016/2017 will reach 320 million tons (-3 million tons y/y). With that, consumption mainly due to China will increase by 6 million tons to the level of 327 million tons. However, again, the increased demand will mainly be met by Argentina and Brazil. The expensive dollar will continue to pose problems for exporters in the United States, while the weakness of Latin American currencies will spur the domestic interest for export.
Source of data: IGC
In my opinion, the technical level of $10.10 for the May soybean futures (CBOT) looks quite attractive for profit taking or sales by the producers, as domestic and external demand prospects in the United States are not particularly good. Therefore, I believe that the soybean futures (CBOT) after a brief consolidation will reach the level of $9.70 - $9.50 over a month.
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