Canada Markets

Is There Trouble Ahead for New-Crop Soybeans?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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While old-crop soybeans reached more than a six-month high last week, new-crop trade is showing signs of waning, with this week's November trade consolidating within last week's trading range after falling short of a test of November highs. Breach of a number of weekly lows above $9.73 could spell trouble for this market. (DTN graphic by Nick Scalise)

The farmdocDAILY's January 23 Weekly Outlook written by Todd Hubbs of the Department of Agricultural and Consumer Economics of the University of Illinois, could present important food for thought, given current estimates for the United States soybean market.

Titled "Is it Time to Sell Some 2017 Soybeans?", the outlook said this includes yet another record soybean crop in Brazil, the largest U.S. carryout of soybeans this crop year since 2006/07 along with current private estimates which are pointing to a significant increase in U.S. planted acres for 2017.

The authors of this report suggest that the increase in acres will materialize in 2017, with lower inputs required by soybeans and its price premium to corn behind the move. The USDA's latest estimates of winter wheat plantings reaching the lowest level since 1909 is viewed as yet another indicator of a shift from wheat to row crops.

On Tuesday, private economics firm Informa revised its estimate of soybean acres to be planted in 2017 slightly lower to 88.647 million acres, which remains a record acreage and 5.2 million acres or 6.3% higher than the acreage planted in 2016.

Given the Informa estimate, with 99% of this acreage harvested and yield at the previous five-year average, production would reach 4.066 billion bushels, although would be below the 4.307 bb currently estimated for 2016/17. At the same time, when added to the estimated 480 million bushel carryout for 2016/17, total supplies would then grow to a fresh record. Should yield come closer to the estimated 52.1 bpa record achieved in 2016, 2017/18 crop year supplies could crack the 5-billion-bushel level for the first time after exceeding 4 bb for the first time in 2014/15.

The rationale for pricing given in the farmdocDAILY piece was that current new-crop bids in their state of Illinois are found in the upper-end of the $9 to $10 range. This is the current estimated range of producer prices for the current crop year as released by the USDA in its January estimates. That price level becomes an even more attractive level for next crop year, given expanded acres and a large carry-in from 2016/17.

Current actions by the U.S. government with respect to trade could add further risks to the markets. On Monday, the U.S. government signed documents to officially pull out of the Trans-Pacific Partnership (TPP), while concerns are growing over trade relations between the U.S. and China, the country's largest soybean buyer. On Tuesday, the American Soybean Association spoke in favor of North American Free Trade Agreement, which is also on the negotiating table, citing the deal as critical to the growth of U.S. exports with shipments to Mexico increasing 500% between 1993 and 2015.

As seen on the attached November soybean weekly chart, new-crop trade fell short of testing the November high in last week's trade, while has since consolidated in sideways trade. There's two levels of key support from weekly lows that will remain important moving forward. The weeks of Dec. 19 and Dec. 27 resulted in a low of $9.80 3/4/bu. while the weeks of Jan. 3 and Jan. 9 saw lows of $9.81 1/4/bu. These four weeks make up the first level of support on the weekly chart.

The next level of support on the weekly chart is seen in the weeks of Oct. 31, Nov. 7 and Nov. 14, when weekly lows reached $9.74 3/4/bu., $9.76 3/4 and $9.75 1/2/bu., respectively. Also in this vicinity is the 50% retracement of the move from the August low to the November high, calculated at $9.73 1/4/bu.

The lower-study on the attached chart shows the current November/January spread at minus 2 1/2 cents, a weak carry which could be viewed as a mildly bullish view of market fundamentals by commercial traders. This spread has remained steady on the weekly chart since the week of Jan. 9 and bears watching.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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