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Elevated CBOT soy prices in serious need of less talk, more action

The recent price action in Chicago-traded soybeans has been friendly for the bulls, and even historically aggressive. But the futures rally has plateaued over the last several sessions, and now the bullish market is at risk of a downturn without more supportive news very soon, particularly surrounding U.S.-China relations.

Soybeans being sorted according to their weight and density on a gravity sorter machine at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. REUTERS/Dan Koeck
Short-term trends in Chicago wheat futures have also been dynamic, but that is less true for corn prices, despite being at multi-year highs.

CBOT November soybeans settled at $9.33-3/4 per bushel on Wednesday, well off the most recent low of $8.51 from Sept. 9. That marks 30 straight sessions in which the most-active contract closed above its 20-day average, the longest such streak since a 75-day stretch from March to June 2016.

Most-active soybean futures have traded completely above that 20-day average for 30 consecutive days as well, and the last time that happened was in February and March of 2012.

The recent enthusiasm for soybeans started as market participants began to realize that the short U.S. soybean harvest could reduce burdensome domestic stockpiles by up to 50% over the next year, something that previously seemed like a multi-year task.

But optimism over renewed trade between the United States and its top soybean buyer, China, has helped sustain the higher prices in recent weeks. Over the last several days, soybean futures have reached levels not seen on a most-active chart since June 2018, when the trade war was in its infancy.

Professional trading funds recently wiped out the net short soybean position that they maintained for basically 16 months. As of Oct. 15, they held a net long position of 49,029 futures and options contracts, and trade sources suggest they have extended that view in the days since.

The soybean market has its eye squarely on an expected U.S.-China trade deal. Earlier this month, U.S. President Donald Trump said China had agreed to buy as much as $50 billion worth of U.S. farm products, and Beijing said Tuesday that it would waive import tariffs for Chinese crushers on up to 10 million tonnes of U.S. soybeans.

But there have not been many sales in recent days, and the market is likely to grow more impatient as each inactive day passes. As of Oct. 10, China had booked 5.64 million tonnes of the U.S. oilseed for delivery in 2019-20, and through Wednesday, there was no confirmation of additional purchases.

Soybean futures have also recently outperformed longer-term trends, but the stats are not as impressive as in the shorter periods. November soybeans have closed above their 200-day average for 17 straight sessions, the longest stretch for the contract since early March.

December corn futures ended at $3.87-3/4 per bushel on Wednesday, the contract’s highest price for the date in six years. But the corn market might feel less top-heavy than that of soybeans.

Money managers still hold bearish views in corn. They were net short 66,141 futures and options contracts as of Oct. 15, and they are believed to have turned even more pessimistic in the days since. Additionally, December corn futures have not closed above their 100- or 200-day averages since Aug. 9, a record streak of 52 days.

In fact, the most-active contract has not touched its 100-day average since Aug. 12. That is the longest stretch below that mark since a 76-day run in late 2017, which began right after the August report from the U.S. Department of Agriculture.

Corn futures have recently been elevated relative to shorter-term benchmarks, however, but they have drifted downward since. December corn closed above its 20-day average for a 27-day stretch ended Oct. 18.

Like soybeans, wheat futures have also been on the uptrend, especially in recent weeks. December wheat has closed above its 20-day average for 33 straight sessions as of Wednesday. If the streak extends through Thursday, it will be the longest period above the 20-day average for the most-active contract since a 50-day stand from June to August 2010.

Hedge funds may have also turned slightly friendly toward CBOT wheat recently, as they were net short 10,564 futures and options contracts as of Oct. 15. But recent estimates suggest they are slightly long in real time.

Wheat futures have recently thrived on dry weather curbing output in the Southern Hemisphere and signals that global cash prices for wheat are climbing. Corn has been supported over the longer term by uncertainty over the U.S. crop, but more recently on the expectation that China will buy large volumes of the American grain.

The uncertainty around U.S.-China trade, and even China’s exact demand requirements, is perhaps the primary focus across all agricultural commodities right now, and industry participants have previously been let down by overly optimistic hopes for a deal.

The structure of the soybean market, in particular, is different now than it has been in more than a year, and that could change the sensitivity of price to news or its absence.
Source: Reuters (Editing by Matthew Lewis)

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