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Looking to the Futures

Soybeans-Bull Market Price Correction or Near-term Top?

Fundamentals:

The bull market run for Soybean process has hit a speedbump, as a recovery in the US Dollar and producer selling pressure ahead of the harvest, has sent prices back below $10 per bushel in the front month November futures.

Soybean prices have rallied over $1.50 per bushel since the middle of August, as renewed Chinese buying of US Soybeans and a selloff in the Dollar triggered renewed buying interest by commodity funds in the grain complex, but especially in Soybeans, where the most recent Commitment of Traders reports shows Non-Commercial traders holding a net-long position in Soybeans of 237,760 contracts as of September 22.

Since this time, we have seen the US Dollar Index rally off of recent lows and the pace of Chinese buying has slowed somewhat, which was just the catalyst needed  to trigger the recent 50-cent pull back in the November futures.

Now that we have seen a pause in the Soybean rally, what else should market participants look for that could influence the next direction for prices?

First, we have to see if China has met its near-term needs for Soybeans or if additional US sales will occur.

Brazil, a major Soybean exporter to China, is thought to be nearly out of exportable Soybeans until after the New Year, when the South American Soybean harvest begins around February. So if China has secured enough to meet its needs until the beginning of 2021, the US could lose out on sales to Brazil and Argentina during the first half of 2021.

However, if Chinese buying of US Soybeans continues, it could significantly tighten US Soybean ending stocks especially if US production fails to meet USDA estimates due to dry conditions in the heart of the Soybean growing regions of the US during August, which is the key pod filling timeframe for the oilseed.

The USDA lowered its forecast for average US Soybean yields to 51.9 bushels per acre in the September WASDE report, which was 1.4 bushels per acre lower than that in the August report.

There are some analysts who believe that the average yield will be closer to 50.0 bushels per acre once the harvest is completed. While it is unlikely that the USDA will lower the average Soybean yield by nearly 2 bushels per acre in the upcoming October Crop production report scheduled for October 9, any downward revision in the yield forecast would add to the bullish narrative and keep Soybean traders on alert for news of additional Chinese Soybean purchases or weather forecasts calling for dry conditions during the South American growing season either of which could send Soybean prices to test recent highs.

However, if additional Chinese purchases do not materialize or it appears that Brazil will produce a bumper crop this coming season, the large speculative net-long position could be the fuel for a significant price decline if the current bullish narrative fails to hold. 

Technicals:

Looking at the daily chart for November 2020 Soybean futures (SX20), we notice the marker has retraced over 60-cents since the recent highs were made back on September 18.

While the market has breached both the 10 and 20-day moving averages (white and green respectively), the recent declines have been on lower trading volume, which could be a sign the recent selling pressure has been primarily long liquidation and not as much new short positions being established.

The 14-day RSI has retreated from overbought levels well above 85 at its peak to a much more neutral reading currently at 54.35 as of this writing.

We do see some near-term support near the 980.00 price level, with more substantial support found near the 920.00 area.

Near-term resistance is seen at 1008.75, which was the September 14 highs, with significant resistance found at the September 18 high of 1046.75.

 

Contract Specs:

November 2020 Soybean Futures (SX20)

 

Trading Calendar:

GDP (Q2 ’20): 8:30 a.m. ET

Chicago PMI: 10:00 a.m. ET

EIA Energy Stocks: 10:30 a.m. ET

Quarterly Grain Stocks: 12:00 p.m. ET

First Notice Day-Futures: October Metals, Soybean Oil, Soybean Meal

Last Trading Day-Futures: September 5-year Notes, 2-year Notes & Fed Funds

                                               October Heating Oil, RBOB Gasoline & Sugar

                                                November Brent Crude Oil

Last Trading Day-Options: September Fed Funds

                                                October Lumber

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