Todd's Take

One year ago, USDA's March 9 WASDE report offered a familiar bearish prognosis for soybeans. U.S. ending soybean stocks were expected to reach 460 million bushels in 2015-16, up from 191 million bushels the prior season, and USDA expected an average farm price of $8.75 a bushel.

Brazil's soybean crop was estimated at a record high 100.0 million metric tons and Argentina was expecting its second-largest crop of 58.5 mmt. With South America's big crops coming on the heels of a successful 3.93 billion bushel U.S. harvest the previous fall, USDA's numbers suggested lower soybean prices ahead.

We now know that soybean prices actually traded higher after the March 2016 WASDE report, so it was fair to wonder if a similar pattern would repeat this year. After all, USDA's estimates were much the same. In 2017, USDA's March 9 WASDE report estimated U.S. ending soybean stocks at 435 million bushels with an average farm price of $9.60 a bushel. Brazil's soybean crop was estimated at a record high 108.0 mmt while Argentina's crop estimate was at 55.5 mmt.

In spite of both years showing eerily similar USDA estimates, actual market clues are telling a much different story. The most obvious difference is seen in March's performance of soybean prices. In March 2016, spot soybeans pushed consistently higher and finished with their highest monthly close in eight months.

Conversely, on Feb. 23, 2017, I noted in DTN's Closing Market Video with Bryce Anderson that May soybean prices turned technically bearish after posting a new five-week low. Prices proceeded to take out their 2017 low on March 14 and finished the month at their lowest price in seven months.

As obvious as the two different price trends have been, there is another market clue that should not go overlooked and that is noncommercial sentiment. In 2016, noncommercial traders were bearish from the time of the 2015 harvest up until the first week of March 2016. The bearishness was understandable, in line with the USDA estimates explained above.

In 2017, however, a more bullish attitude prevailed among traders. In spite of similar USDA estimates and favorable weather reports for Brazil, 75% of noncommercial positions were on the long side in soybeans as late as Feb. 22, just one day before that new five-week low was made.

In some situations, noncommercial investment can drive prices higher, but in late February 2017, prices were not trending higher and there was no production threat taking place. The risk of disappointing 166,769 contracts net-long was high and added to the selling pressure we eventually saw. Friday's CFTC report showed just 51,854 net longs left standing on March 28, a significant drop.

As most will remember, March 2016 was the start of a $3.00 rally in spot soybeans that peaked in early June. Prices got a little help from a late turn of bad weather in South America, but largely the rally was driven by an unexpected surge of commercial demand for soybeans and meal, which became more obvious in late April.

While it may be tempting for some to hope that soybean prices will be rescued by demand again this year, market clues are not sharing the optimism. Last year's soybean prices emerged from bearish sentiment and broke new highs in March. This year's prices started with investors in a bullish mood and went on to break new lows.

Seasonally speaking, this is still the time of year when soybean prices lean higher, so all these early bearish clues do not bode well for 2017 prices. Friday's planting estimate of a record high 89.5 million soybean acres from USDA only added more weight to bearish pressures. There is no way to predict how long this downtrend will last, but we can comfortably say that this year's parallels with 2016 stopped at USDA's WASDE estimates -- soybean's actual behavior is much more bearish.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

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