Fundamentally Speaking

Have soybeans put in at least a temporary top?

After a very robust rally that has brought values of oilseed to their loftiest levels in more than four years, the spot January 2021 contract has recently made at least three attempts to push past the psychologically important $12.00 per bushel level and have been rebuffed each time.

Reasons for the recent slide include short-term weather forecasts for Brazil having turned more favorable, the pace of Chinese soybean purchases has eased amid negative crush margins over there as the trade is wondering how many more soybean contracts will be washed out while the funds are starting to lighten up their positions amid profit-taking before year end and ideas that prices may be range-bound perhaps till a number of key USDA reports are released early next year.

This graphic shows the three-day net move from high to low in $/bushel on the right-hand axis and the three-day change in total open interest on the left-hand axis for the spot soybean contract since the beginning of the year.

Figures in the yellow boxes are those three-day periods were prices from the high to low was at least 40 cents per bushel and the accompanying change in the total open interest if also furnished.

These number eight of which the most recent was from a high of $11.94 on November 27 to a low of $11.43 on December 2, a fall of 51 cents which is the largest three-day drop since this rally began in earnest the middle of August and the second largest decline next to the 58-cent plunge back in mid-March when both stock and commodity marks were crashing as the pandemic was start to take hold in immense fashion.

It has been noted that even with the recent fall in prices, open interest has actually increased which is only the case one other time since the year started when prices over a three-day period fell by at least $0.40 per bushel and that was back on September 16 where the open interest actually increased by 25,953 contracts even as values fell by 40 cents per bushel.

It could be that some end-users have stepped in feeling the recent drop is an opportunity to procure coverage for a commodity whose long-term fundamentals appear quite bullish.

The fact is South American weather remains uneven at best and threatening long-term with La Nina while U.S. soybean stocks at 190 million are already razor thin and as a percent of usage, the lowest ever for the November WASDE estimate.

As noted before even adding 5 million acres to next year's plantings it would still be difficult to keep ending stocks above 200 million bushels while U.S. export shipments are running at record pace suggesting perhaps more room for a bump in overseas sales.

Other supportive factors include freefall of dollar in foreign exchange markets raising inflationary sentiment and making our exports cheaper overseas and likelihood of another cut in yield in final crop report of the year next month.

It may be, in retrospect, this week's "correction" may have been an optimal buying point as the old adage says bull markets always let you in.

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