Todd's Take

It is no surprise by now that soybean prices are off to a bearish start in 2017, and the reasons are not difficult to understand. A record U.S. harvest last fall of 4.3 billion bushels was followed by a record Brazilian harvest this year of 4.1 bb (111.6 million metric tons) and is expected to be followed by record U.S. soybean plantings this spring, which could produce another 4.3 bb or more in the fall of 2017, weather permitting.

Even with world demand for soybeans growing faster than both corn or wheat, good weather has kept production high and U.S. soybean supplies are expected to increase again in 2017-18. Soybean prices held firm to start the year, but in DTN's Closing Market Video on Feb. 23 with DTN Senior Ag Meteorologist Bryce Anderson, I pointed out that soybean prices turned technically bearish as the May contract broke to a new six-week low at $10.22 1/2.

Here we are just over three months later and July soybeans are under $9.25, trading near their lowest prices in over a year. Wet weather has made corn planting difficult this spring and it is looking like soybean acres will meet and possibly surpass USDA's March estimate of 89.5 million planted acres.

As bearish as the outlook is for soybeans, some curious signs of bullishness are currently dormant but are worth keeping an eye on. My suspicion is that support for prices is closer than many might suspect.

For exhibit A, Friday's Commitments of Traders report showed commercial firms net long 117,192 contracts of soybeans as of May 30, the largest long holding in two years. Commercials don't usually go long on the board unless prices are cheap enough to offer good value, and apparently they are finding spot prices attractive in the low $9s.

On the flip side, only 41% of noncommercial trades are long, the most bearish sentiment among speculators since February 2016. Noncommercials can drive a trend either direction, but they are usually wrong when they are this bearish and commercials are net long.

You may recall how a 31-cent slide in soybean prices was triggered on May 18 after a scandal in Brazil led to a 7% overnight drop in the price of Brazil's real. The real's loss has moderated to 4% since then, and U.S. soybean prices have dropped further, but U.S. soybean shipments are still up 19% from a year ago, helped by FOB U.S. soybean prices that remain competitively close to Brazil's prices.

The final hint that soybean prices may be close to support comes from crush premiums in soybeans. While soybean exports have been impressive, crush activity has been disappointing in 2017, running roughly 1% lower than a year ago. Adding to bearish perceptions, soybean meal prices have also been falling since late-February.

More importantly, however, the value of July soybean crush products expressed as a percent of July soybeans price shows an increase in the crush return, from 14.0% in late-February to 16.2% as of Friday, June 2, the most in nearly a year. That should be enough to entice more soybean crush and I will be watching the next report from the National Oilseeds Processors with interest on June 15.

As mentioned above, the current trend for soybeans is clearly down and the bearish arguments are easy to understand. Soybeans' bullish clues have not been strong enough yet to turn this year's bearish price trend higher, and it is difficult to imagine soybean prices being able to trade too much higher without some kind of help from adverse weather.

But if soybeans can survive USDA's planting estimates on June 30 without a bearish surprise, prices should have a chance to stabilize in the low $9s. The rest will be up to Mr. Weather.

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

Follow Todd Hultman on Twitter @ToddHultman1

(BAS/CZ)

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