Todd's Take

Inmy Aug. 15 column, "The Unsinkable Oilseed" (http://bit.ly/… ), I explained how remarkable it was that soybean prices were holding up as well as they were in 2017, given their steady diet of bearish news. On Friday, another bullish piece of the puzzle fell in place as the November contract posted its highest close in seven weeks.

From a fundamental perspective, prices are apt to be jumpy as Monday's 13 cent loss proved when the weekly forecast turned wetter for central Brazil. From a long-term technical perspective however, November soybeans are headed for a higher close in September and may become the bullish straw that breaks the bearish camel's back.

I don't say that lightly as this kind of situation where long-term market indicators line up in agreement don't come along every day. Just over a month ago, on Aug. 3, I mentioned in DTN's Closing Market video with DTN Senior Meteorologist Bryce Anderson that soybeans were a good example of an incoherent market.

At that time, November soybean prices had fallen to a new one-month low with record soybean plantings and occasional rains providing bearish pressure. In contrast, there was bullish pressure from an active export pace and USDA crop ratings, which put DTN's Soybean Crop Condition Index at its lowest level in five years. Noncommercials were lightly net long and commercials had a small position of net shorts, but in early August, there was no clear case for soybean prices in either direction.

Things got more interesting after Aug. 15. Coming a few sessions after USDA predicted a record 4.38 billion bushel soybean harvest in the Aug. 10 WASDE report, November soybeans fell to $9.24 1/4, its lowest close in six weeks. CFTC data later confirmed that noncommercial traders did not respond to the new low with more selling as they often do. Instead, traders held back and prices have traded higher since.

By late August, commercials showed more interest in the long side of soybeans, and on Friday, CFTC showed commercials net long 14,987 contracts as of Sept. 19. As I have written before, commercials are especially good at assessing soybean demand, and their willingness to go long on the board speaks well for the value of soybeans -- even in the face of this year's anticipated record harvest.

Keep that in mind while we zoom out to a longer-term perspective of soybean prices. In early 2016, soybeans emerged from a bearish winter and embarked on a four-month rally that took spot prices briefly above $12.00 in June. The rally was driven primarily by commercial demand for meal and soon found noncommercial traders also jumping on the uptrend, amassing over 250,000 contracts net long in the process.

After the June 2016 peak, soybeans chopped lower for the next 12 months, eventually shaking noncommercials out of their net longs. By June 27, 2017, spot soybeans were down to $9.11 1/4 and noncommercials were net short 94,540 contracts. Based on the number of net shorts, it was the most bearish noncommercial position since 1997.

Fast forward to Friday and we see spot soybeans at $9.84 1/4 and noncommercials net long 20,124 contracts. As we look back, the June 2017 low of $9.00 1/4 caught traders unduly bearish and may very well mark the end of the downtrend. Even though USDA is now expecting a record 4.43 bb harvest, November soybeans are staying well above that June 2017 low.

Put it all together, and we see a soybean market that corrected back from a big rally and shook out noncommercial traders without having to make new lows. Barring an unexpected surprise this week, the monthly stochastic is about to confirm a bullish change in momentum, similar to what we saw in March 2016.

In terms of wave theory, I don't know if the 2016 rally and subsequent one-year decline were A and B waves or 1 and 2 waves, but what does seem clear is that the long-term downward momentum of soybean prices has been broken. It's a big world, and one can never guarantee the future, but for soybean producers and traders alike, the long-term prospect for soybean prices is looking up.

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

Follow Todd Hultman on Twitter @ToddHultman1

(BAS/SK)

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