Soybeans started the final full week of the trading year on a negative note as a “bearish” National Oilseed Processors Association crush number had some market bulls booking profits.
It looks like bean processors did not run as aggressively as the trade was expecting last month. The NOPA report showed that the industry crushed 161.211 million bushels in the month of November. The trade had been thinking the number would be closer to the 165.404 bushels level.
Even though the numbers were considered bearish, it was up 2.1% from October’s 157.960 million bushel number and was above last year’s November crushing of 160.145 million bushels. Given the margins that were seen, most in the trade were thinking that they would run every bushel they could. What the number suggests is that the processors were still having a hard time getting their hands on soybeans (CBOT:ZSF15). The year to date crush is now 1.6% under last year. The U.S. Department of Agriculture’s goal for the whole year is to crush 2.7% over last year. To meet their hopes we will now need to run 4.3% over from December through August. We still think that is doable, but will point out it is a pretty stout pace. The industry tends to crush more beans early in the marketing year and then taper off the amount of beans consumed as we go through the year.
With FSA numbers out of the way (they were leaked Friday and officially released today) as well as the crush, the trades attention will now shift to tomorrow’s Chinese delegation visit. It is anticipated that they will be signing more “framed contracts”. These are agreements to purchases beans that in reality the USDA is already forecasting them to buy so it really is a “dog and pony show” more than anything else. Unfortunately, the computers don’t know this and when the “framed sales” are announced the Algo traders more than likely will buy the market.
The last time China signed these deals it was for 4.8 mmt of beans and the USDA announced the over 2.0 mmt in sales on the daily announcements over the next few days. One thing the trade is waiting to see is if these “framed buys” are for old crop or new crop. Last week all the talk was it would be for old crop purchases but with China’s needs being almost covered through January, these buys might end up being for new crop purchases. Either way with all the hype about the visit, the market is set up for a buy the rumor sell the fact reaction once the contracts are announced.
The bulls have had a pretty good Thanksgiving feast and a round of profit talking could mean bears get a Christmas feast. Allendale continues to view the current price of beans overvalued and would not recommend chasing the market higher. With this in mind we continue to recommend producers use this rally to sell cash grain or at least buy puts to protect unpriced grain. Our price models put the economic value of beans at $9.35.