SOYBEANS: May Have Taken Out Too Much War Premium; Demand Remains Strong
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The soybean market closed sharply lower on the session yesterday, but up 21 cents from the lows of the day. The early selling drove the market down to the lowest level since February 28. A collapse in energy markets and a sharp drop in most agricultural markets plus a jump in the stock market seems to have traders convinced that a cease-fire is close at hand, and the war premium is coming out of the market very quickly. The market is now trying to price in a "back to normal" scenario. News that China plans to release 500,000 tons of soybeans from state reserves this week was seen as a bearish factor for meal. Soybean acres are difficult to predict this year and several factors are in play. The soybean/corn ratio is currently favoring corn plantings, but it's hard to keep up with the inputs as fertilizer prices surged to a new all-time high. For the USDA plantings report, the average trade expectation is 88.9 million acres with guesses ranging from 86 to 92.9 million. This would be up from 87.2 million last year and above the USDA's Outlook Forum estimate of 88 million. March 1 soybean stocks are expected to come in near 1.888 billion bushels (1.532-1.965 billion range), up from 1.562 billion bushels last year. This is a very wide range of 433 million bushels.
Argentine gas stations are selling a maximum of 15 liters of diesel per customer. The rationing could be a factor which limits harvest activity. In addition, fears of a fertilizer shortage could be a factor to reduce fertilizer usage and production for key producers. Russia is Brazil's main supplier of fertilizers, and the war in Ukraine is leading to fears that crop nutrient shipments will be disrupted. Much of the US Midwest has seen above average precipitation over the past week. There are reports of field work being slowed by the rains in the Delta and the eastern Corn Belt. One notable exception is the Dakotas, which have seen below average precipitation the past week and in the last 30 days. Crushing margins remain very high and capacity is on the rise. Renewable fuel capacity and elevator capacity are also on the rise which is a positive demand force.
MARKET IDEAS
If the market extracts the war premium, the focus will return to normal fundamentals. Gulf basis was strong. Key support for July Soybeans is at $15.39 1/2 with close-in support at $15.97 3/4. It will take a move back over $16.72 to turn the charts bullish again. November soybeans key support is at $14.16 1/2 with resistance at $14.79 and $14.96 3/4. Our short-term bias remains in the bull camp.