The chink in the armor of the seemingly powerful export market is that shipments are a bit weak. Last year at this time US exporters had shipped 90% of final sales, whereas this year that figure is 85%. This leaves commitments vulnerable to cancellations. In fact, there have been stories circulating that China is getting ready to cancel some old-crop soybean shipments from the US in favor of switching to significantly lower-priced new crop South American origins. In any case, the commitment data are only a week old when they are reported, and it’s hard to believe that the Chinese would be loading up only to turn around and cancel orders.
Another potential bearish factor that’s been talked about and that could explain the market’s weakness is traders’ belief that the USDA may have underestimated 2012-13 soybean acreage. Charts 2 shows that soybean prices have been much stronger than corn or cotton. However, soybean planting progress has moved at a torrid pace and is nearly complete. Most of the crop was in the ground before farmers could take advantage by switching crops.
Finally, rounding out the bear case, some estimates for the battered South American crops have improved in recent days.
Nevertheless, the hard fact is that we’re limping out of one season that is ending with a dangerously low carryover into yet another, as illustrated above. The bearish factors, even if all realized, will not significantly change the world balance, which is going to have a sizeable drawdown in ending stocks for 2011-12. Global ending stocks were revised downwards in the May crop report, to 20.9% of usage, down from the April estimate of 22.4% and compared with 27.5% in 2010-11.
All commodities are taking it on the chin, and the prices of some with basically bullish fundamentals are affected as well. We believe soybean prices should move back up to the highs and beyond.
Buy November soybeans. Place initial stops at $1,250 per bushel, close only.