Soybeans. Technically I'm looking for heavy resistance in theNOV14 contract up between the $9.80 and $10.00 range. I suspect there will be heavy farmer selling at the $10 mark, so a rally beyond this level will take additional help from South American weather or some type of geopolitical wild-card. Nearby support in the NOV14 contract seems to be between $9.40 and $9.50. It's still tough for me to get bullish, especially when you consider U.S. and Brazilian production has increased so drastically the past couple of years. Keep in mind, global inventories are projected to be up over 35% from last year.
Then you have to throw in the fact South American and U.S. producers are planning on planting even more acres in 2015. I heard someone mention the other day that global harvests are up nearly 30% in the past three years, while demand is only up about 10%. I realize that's a vague description, but it actually paints a fairly accurate picture. Global soybean prices skyrocketed on back-to-back production problems in South America and the U.S. In return, everybody and their brother raced out to plant more soybeans. Now we are paying for it. Growth in supply has clearly outpaced growth in demand. It's going to take a little bit of time, but eventually I suspect the wrinkles get ironed out and prices start to stabilize (I just don't think we are there yet). Producers should remain patient, keeping all soybean hedges in place, and use any extended "geopolitical" or "weather" related rallies to reduce additional long-term risk.
A deeper look into Brazil
I had the office put together a more clear and current map of the soybean production totals across Brazil last season. From what I keep hearing, Mato Grasso, by far their largest soybean production area, is still extremely dry. In fact, many insiders are saying planting has come to standstill at less than 10%, when normally they would like to be somewhere between 20-30% at this juncture.
Some other areas we need to keep an eye on: Goias; Minas Gerais, Bahia, Sao Paulo, parts of Mato Grasso do Sul and parts of Parana. I'm certainly NOT saying it's a MAJOR factor just yet, I think we are still a bit too early, but if it continues to stay dry in these particular areas, the markets could certainly feel the need to add some additional weather related risk-premium.
There are some rains in the forecast for this weekend and some better chances mid-next week, so we need to start paying closer attention. Remember, the market has already penciled in an additional 5% to 8% jump in Brazilian soybean production when compared to last year (form around 86 MMTs to around 94 MMTs). The fear is with soybean prices in Brazil already below the cost of production for many producers (depending on how far you are from the ports) some guys might simply elect not to waste the seed??? Get my daily report.