Canada Markets

The USDA has released two sets of bearish new crop projections for soybeans in as many weeks although the current market is simply ignoring the call for increased ending stocks and much lower prices.

First was the USDA's Baseline Projections, released Feb. 14, which includes a first look at the 2014/15 crop year and includes assumptions and supply-and-demand projections out to 2023. This report called for 78 million acres to be planted this year while leading to an overall production estimate of 3.480 billion bushels. Ending stocks were forecast at 183 million bushels, while an overall average producer price was estimated at $9.75/bu.

On Feb. 20, the USDA introduced an updated forecast which suggested that the 2014/15 soybean crop would be planted on an even greater 79.5 ma, with an estimated record crop size of 3.55 bb produced. Ending stocks are expected to swell to 285 mb from this year's 150 mb, a near-doubling of the ending stocks figure, while soybean prices are expected to average $9.65/bu. for the crop year starting Sept. 1.

New crop futures show few concerns surrounding the new-crop projections, with tightness in old-crop supplies continuing to pull new-crop higher. Today's close in the November soybean future was $11.60 1/4/bu., which is 72 cents or 6.6% above the double low (not shown) of $10.88 1/4/bu. reached on Jan.30-31. Nearby resistance for this market remains with a series of weekly highs in the $11.72 1/2 to $11.74/bu., then again at the $11.81 3/4/bu. level which marks the 38.2% retracement of the move from the September 2012 high to the January 2014 low.

The response from commercial traders is seen in the third study, which represents the new crop November/January spread. This spread reached a November 2013 low on the weekly chart of 6 1/2 cents carry (January above the November), then dipped to a 2014 low of minus 6 1/4 cents in early January. Since then, the spread has narrowed to minus 4 cents in today's trade, a sign of increasing bullishness in the new crop positions despite the release of the bearish projections released.

The 4-cent carry is testing resistance on the spread chart in the current trade, a level also reached the week of Feb. 10 as well as the week of Nov. 18. Weekly resistance on the spread chart also appears at minus 3 3/4 cents as well as minus 3 1/2 cents.

As we move forward, traders will remain fixated on South American weather and its impact on both the crop and the harvest, along with South American logistics and monthly reports indicating Chinese demand. Producers may want to consider remaining armed with fall contracting alternatives or consider stepping in to the market to purchase protective puts should this market show signs of faltering.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

(ES)

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