When the soybean futures price reaches $ 12, there is only one question: Will it reach $13?
At first glance, domestic demand for soybeans in the United States is growing. In May, according to NOPA statistics, the volume of processed soybean amounted to 152.8 million bushels. This is 2.1% above market expectations, 2.96% higher than the May results of the previous year, and, generally, a record historical figure.
In principle, such an increase is quite justified considering that in May, as a result of the takeoff in soybean meal prices, the margin of the U.S. refiners topped $1.5. But if the soybean meal price remained approximately at the May level, while the soybean oil price decreased, the soybean price rose by another good 10% during the same period. As a result, the refiners' margin returned to a level below $1, and perhaps this will slow down future domestic soybean consumption.
Source: Allendale, Inc.
Actual soybean export volume in the United States is lagging behind the rate seen in previous years. According to the USDA, as of the second week of June, the forecast for exports was 90%, while the average result of the previous three years amounted to 96%. On the other hand, the volume of outstanding sales of soybeans exceeded the five-year average level at the current time of the year. As a result, the total volume of the accumulated soybean exports and outstanding sales already exceeded the USDA exports forecast.
The only thing that overshadows the exporters' success is the low activity in China. According to the latest USDA data, the volume of soybeans exported to China in the current marketing year, taking into account pending sales, is 9.1% lower than in the previous year. When you consider that the Chinese government intends to sell from 3 to 3.5 million tons of soybeans at domestic auctions, Chinese demand might not be as high as the USDA expects. By the way, according to the USDA in Beijing, the current estimate of total Chinese soybean imports in 2015/16 and 2016/17 marketing years is below the official USDA forecast.
The first field inspections, done by the USDA, indicate the best condition of soybean crops at least over the last four years. There is still a long ripening period and weather risks, with the possible transformation of an El Nino to a La Nina -- hence, the pressure factor here is clearly present.
The internal soybean price in Brazil is hitting historical records. The key drivers are high world prices and the devaluation of the Brazilian real. I believe it is logical to assume that local farmers will take advantage of the situation to sell future crops; however, it is unlikely they will abuse it too much. The political and economic situation in Brazil is far from stable. Since the beginning of the year, the unemployment rate rose from 9% up to 11.2%, and monthly inflation since July 2015 did not fall below 9%.
Moreover, the fall in GDP in the last reporting quarter amounted to 5.4%, vs. a decline of 5.9% in the previous quarter. In the current year, the credit funds will cost more to the farmers. In general, I think the Brazilian farmers will, most probably, hold a part of the harvest as insurance in case of even higher inflation. But, at the same time, they will greatly expand the area under crops for 2016/17 -- i.e., the factor of Brazil will support the market in the short term and put pressure on it in the long term.
And, finally, there is seasonality. For the previous six years, during the period from June to August, the soybean futures price grew only in 2012. The stock-to-use ratio, calculated for the U.S. market, reached 4% in 2012, while in the current year it hasn't yet fallen below 6.5%. So, probably, the seasonality factor will also not support the soybean price.
In the current time of year, soybeans are the most difficult to forecast. In the meantime, I believe that this year the soybean futures price has already made a lot of headway. With a one-month horizon, I only see the prerequisites for consolidation above the price level of $10.
Note: Unless otherwise stated, all the charts included here are my own.
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