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NEAR-TERM MARKET FUNDAMENTALS: The USDA’s crop production and supply/demand reports were considered supportive on the supply side in soybeans yesterday. The market’s initial price reaction to the report was weak, but prices rallied during mid session to finish modestly higher on the day. November soybeans then took out yesterday’s high in the overnight session to trade at the highest level since June 15th. Traders said that prices are being boosted this morning by a very supportive outside market configuration. On yesterday’s report, the USDA pegged the 2009/10 soybean yield at 41.7 bushels per acre versus 42.6 in July. This was below trade expectations near 42.2. Harvested acreage was increased by a modest 300,000 to 76.8 million. Total production was estimated at 3.199 billion bushels, down from 3.260 billion in July and below trade expectations of about 3.225 billion bushels. Ending stocks for new crop 2009/2010 were pegged at 210 million bushels compared to 250 million last month and trade expectations near 215 million. World ending stocks were dropped to 50.32 million tonnes from 51.83 in July. The USDA announced a sale of 113,000 tonnes of soybeans to China yesterday for 2009/10 delivery. It included 58,000 tonnes previously listed as sold to an unknown destination, leaving 55,000 tonnes of the announced sale as new business. China indicates that drought conditions have worsened in key growing areas of NE China with three times as much crop area now affected by drought in that region since July 31st. Temperatures remain at normal to above normal levels in the US Midwest as we approach the end of the week, but dryness is expected in most of the region through at least Saturday. The 6-10 day forecast calls for below normal temperatures across much of the Midwest, reducing concern over potential heat damage to the developing US soybean crop. This concern had been a major market factor last week. Diminished monsoon rains in India now seem to be focusing on rice-growing areas in the NE of that country with soybeans areas mostly seeing adequate moisture. Deliveries against the August contracts remained at zero in meal with another 7 contracts delivered in soybeans. This takes the soybean total for the month to 17 contracts. Oil deliveries were 329 contracts with the total for the month now at 22,898.
WEATHER: US temperatures continue at normal to above normal levels in many growing areas with more dryness now expected late this week and into Sunday than had previously been forecast. The 6-10 day forecast now calls for below normal temperatures across most of the Midwest and the central and northern plains in the US with above normal precipitation across the southern Midwest, SE and much of the Delta. Fears of a frost in Canada later next week appear to be ebbing. Concern over diminished monsoon rains in India now seem to be focusing on rice-growing areas in the NE of that country with soybeans areas mostly seeing adequate moisture.
TODAY’S GUIDANCE: The USDA’s August crop reports are already old news, with outside markets running the show in the grains this morning. Fundamentally, the market is supported by the fact that soybean demand is still on target to outdistance supply until a good chunk of the new soybean crop is harvested. If prices do not go up in the meantime, farmers may be reluctant to sell in the early stages of harvest, further tightening supply. In addition, the world market must wait until March at the earliest for South American new crop supplies to hit export channels. Right now, the market is assuming that soybean acreage will be up in South America and that growing conditions there will be favorable. If either of those assumptions are downgraded between now and early 2010, buyers such as China will start to increase, rather than decrease, their buying and stockpiling of US soybeans to compensate.
TODAY’S MARKET IDEAS: November soybeans appear poised to move through the June highs sooner rather than later and we would set the next upside objective at 1150.
