One of the benefits of writing daily market commentary on grain markets is that it doesn't take long to see a recurring theme and, while surprises do occasionally happen, I often find myself looking for new ways of writing the same things over and over. Before this week, explaining the soybean market was becoming all too familiar and went something like this: Old-crop supplies of soybeans are currently tight, but expectations of a record crop ahead in South America and expectations for increased U.S. plantings are giving new-crop soybeans a bearish outlook for 2014. Yes, U.S. export sales have been impressive, but the gains in March soybeans have been limited with many concerned that China will cancel sales once they see South America's record crop materialize.
This week, however, a wrench was thrown into that narrative as we watched USDA announce seven soybean sales in eight days starting with 350,000 metric tons (12.9 mb) to China on January 7th. The sales were a mix of old-crop and new-crop, and all have been for China except for one sale to an unknown destination, which is probably also China. Rather than the string of cancellations that we were expecting to see, China keeps writing orders for more. U.S. export sales and shipments currently total 1.52 billion bushels, 2% more than USDA's export estimate for all of 2013-14, and we still have seven months left in the season. This brings up some obvious questions. If a record South American soybean crop is just months away, why does China continue to pay up for soybeans at a faster pace than USDA estimates can keep up with? Yes, China could start cancelling orders tomorrow and end this speculation, but so far, that is not how things are playing out. We have to leave the door open for the possibility of a new bullish surprise.
At this point questions about China's needs remain unanswered, and as usual, we will want to look to the market itself for the best clues. On the old-crop side, the bullish argument prevails with March soybeans well-supported above key support at $12.69 and a bullish inverse in old-crop spreads. On the new-crop side, the current downtrend in November soybeans matches the market's bearish fundamental expectations for 2014, but this will be the contract to watch. The 200-day average is just under $12.00 and October's high is at $11.85, both are important long-term levels of resistance in the tug of war for new-crop soybeans. Also worth watching will be the new-crop spreads, November/January 2015 and November/July 2015 for any signs of commercials bidding higher for front-month contracts. Stay tuned to DTN's daily commentary as we will continue to monitor this situation closely.
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