March soybeans made a minor new high for the move yesterday before breaking sharply during the day and finishing near the lows of the session. This came in conjunction with a broad sell off in commodity and financial markets, and an especially sharp break in crude oil. Funds were said to be sellers in soybeans, meal and oil on the day. Prices were moderately lower overnight in soybeans with soy oil leading the way to the downside due to the sharp drop in Malaysian palm oil. Traders said that thoughts of improved moisture today in Argentina may have contributed to yesterday’s sell off, but those showers are likely to be widely scattered with dry conditions returning tonight. Increased farmer selling in the US earlier this week, especially on Tuesday, was thought to be the most significant internal factor in the recent sell off. Commercial hatcheries in the US set 203 million eggs into incubators for the week ending January 3rd, which was down 7% from last year. In the last 16 weeks, this data has been down 5-12% from previous year levels, and this is likely to tighten the broiler supply for much of the next 3 months. This should cause a significant decline in meal demand in the months just ahead. Keep in mind that the USDA has pegged domestic meal demand for the 2008/09 season at 32.5 million tonnes, down only 1.97% from last year, but January-March consumption could be down 6-7% from last year. Deliveries against the January contracts today were just 77 contracts in soybeans with a total to-date at 1,868. Oil deliveries were 811 with a total; to-date at 8,896. Meal deliveries remained at zero.
WEATHER: Weather in Brazil remains about the same: scattered showers with locally heavy thunderstorms in northern soybean growing areas over the past 24-36 hours. Dry weather continued in the south and all areas look mostly dry through Friday. Saturday and Sunday may see scattered to widely scattered showers and thunderstorms in all areas. In Argentina, scattered to widely scattered showers and thunderstorms are expected in most growing areas today with dry conditions returning overnight and through Sunday. Scattered rains may return on Monday. In the US, cold temperatures are expected in the upper Midwest and northern Plains today with a very sight seasonal warm up through the weekend. Snow is expected today in the extreme northern and eastern Midwest and in the northern Plains and NW Midwest tomorrow. Colder temperatures, possibly sub-zero, are expected in the Midwest and Plains next week. The main question is how far this will extend into the central and southern Midwest and Plains where snow cover is expected to be light or non-existent.
TODAY’S GUIDANCE: The sell-off yesterday tells us that we are no longer in a short covering rally situation and that a New Year and higher prices will bring a new set of circumstances in the cash markets, i.e. regular farmer selling on rallies. The good news for bulls is that selling will likely dry up on substantial setbacks and export demand is likely to remain strong from China, at least for a few more weeks. Supportive weather in South America and the possibility that a sharp drop in prices could curtail US soybean acreage in the spring will also help to stem price declines until new South American supplies start coming onto the market. Support today is near 957 to 959 in the March soybean contract. Resistance is near 1015 and possibly as low as 991.