Historically, September is a bad month for soybeans. This is about the time the harvest numbers begin to crystallize, shortly to be followed by the actual harvest. October, on the other hand, tends to be one of the strongest months of the calendar year for beans as the battle begins between Mother Nature and the farmers in the fields. Given the benign weather patterns we've been experiencing and expect to continue into the near future, we believe the September sell off could've gotten ahead of itself. Correspondingly, October's strength may have arrived a week early.
The grain markets have had few unforeseen complications this year. Therefore, it's no surprise that commercial traders have dominated the soybean trade on both sides of the market. We've seen producer selling totaling more than 200,000 contracts (1,000,000,000 bushels) between $9.50 and $10.50 per bushel this summer, including nailing the August USDA/WASD reports. Furthermore, going back to last year's harvest, we saw end user buying of more than 130,000 contracts near the $9.00 low which wasn't penetrated until late this summer. Clearly, their sense of value on both sides of the market is keen.
Looking at the chart below, you can see that this market's initial low was made on Aug. 22. The market tested this low on September 11th, following the USDA Supply and Demand report. Note that the market made a new low while our short-term momentum trigger actually printed a higher reading on the day. This type of bullish divergence is indicative of a pending reversal.
Additionally, commercial traders were net short approximately 39,000 contracts when the market made the August low but had paired this position back to net short 6,000 contracts by the September test. This was enough to shift their momentum into positive territory and put us on the lookout for buying opportunities. Currently, they're net short approximately 2,000 contracts. We expect their buying to continue.
Finally, given that their net long total reached more than 120,000 this past May, they clearly have plenty of buying capacity left in reserve.