soybeans

Will funds continue to out bet bearish soybean fundamentals ?

The estimates for soybean acreage to be planted this spring may still be too low.

Soybean traders continue to battle it out over traditional bearish fundamentals and bullish macro thoughts regarding a pick-up in global growth.

As of late the bears are clearly winning the battle as the old-crop MAY17 contract has fallen by almost -$1.00 per bushel form it's mid-January high. While the new-crop NOV17 contract has fallen by just over -40 cents from its late-February highs. Weather in South America, similar to what we received here at home last year, continues to help boost production and surprise many once the combine is actually in the field. Hence record soybean production here in the U.S. is gain being followed up by record setting production out of South America. Lets also not forget the USDA, next Friday, will announce that U.S. producers are going to follow-up the record crop by planting yet another record setting number of soybean acres in 2017.

I still think the USDA and many inside the trade are a bit too conservative with their early U.S. planted soybean acreage estimates and will not be surprised by a number that's higher than current trade expectations. As for Chinese demand, I continue to hear talk of weaker margins and slight pullback in import interest. Lets also keep in mind bird flu continues to rapidly advance across Asia and is causing more serious concern.

I'm certainly not saying Chinese demand is going away, I'm just saying their robust growth and aggressive buying might be tapering back a touch as some wrinkles in the sheets need to be ironed out. We also have to acknowledge, even though South American exporters might be having some early logistical issues getting their record crop out of the country, the glut of supplies will eventually weigh on the global marketplace and work to keep somewhat of a lid on nearby fundamental rallies.

From my perspective we are still a long ways form the U.S. weather becoming a major market moving force. Meaning without new bullish macro interest in commodities by the funds, without growth in Chinese demand, without a nearby U.S. weather story, and a glut of South American supply coming online, it's tough to suggest a major nearby rally. Longer-term however things could quickly become much more exciting for the bulls.

If Washington can overcome the healthcare issues and move on to tax reform, I suspect a portion of the macro interest will return to the trade. At about the same time I could also see demand form the Chinese picking up momentum, as well as a U.S. weather story potentially brewing. As a spec I continue to like the thought of building a bullish position on a deeper break in price. Waiting for next weeks USDA acreage estimate, longer-term weather forecasts, and keeping a close eye on the global bird flu headlines.

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