Markets unPACKed: Beans, Beans, the (Not So) Magical Fruit?

Beans, Beans, the (Not So) Magical Fruit?



The October Crop Production report was released on Tuesday, October 12. The question around soybean carryout weighed on analysts’ and traders’ minds, with an analyst expectation around 300 million bushels; some analysts are predicting as much as 373 million after the September report printed the number of 185 million. Ending stocks for soybeans was 320 million bushels with yield increase to 51.5.

Implied volume dropped out of the market, to as low as 16% for near the money front-month options and December options against the January contract. Essentially, people were selling options. Why not collect some premium since beans are done rallying?

The high in beans was put in about a month after corn, at $14.80 on June 7. Before the report last week, we were $2.60 off those highs. Our technical trader had demonstrated ‘failed selling’ at the 1192 level, meaning (from the software CapFlow) that there was a support level found there, and failed buying at the 1292 level made for a resistance level. On October 13, we saw the November contract trade below 1192 to a low of 1184’4 before settling at 1196’6. 1192 remains a level of support for now but if we trade and close below 1192, 1162 is the next notable support level.

Once the report hit, we asked ourselves whether we could find support around or just below $12 before option expiration next Friday. What will it take to maintain prices above $12? Fundamental arguments that may be scraping the bottom of the barrel include topics such as flash sales to China excite the bulls; continued Chinese demand (though not looking great); soybean oil and the global energy concerns rally beans; and Brazil gets too much rain and slows down planting for the next week. Of course, this is much-needed rain. It is hard to get excited about beans ahead of expiration. Let us not forget that we saw soybean yield increase by one bushel per-acre as well, according to the USDA.

Another argument could be made that farmers won’t continue selling here to add to the selloff. However, our clients in Iowa are yielding upwards of 80 bushels per acre, as opposed to their 55-60 bushels level. They are hustling to get it off the field and moving it right to crush plants. In other words, we have a lot of beans, people!

Finally, we could see increased speculation in grains as the alternative ‘cheaper’ energy play for portfolios, away from oil and gas during this energy rally. We could also see an increase in soybean oil demand for renewable diesel and that would certainly help curb export dependence. However, increased use of soybean oil by refineries is projected for late 2022 to 2023 and may not be helpful for current price support.

In conclusion, we are bearish on soybeans and looking for a consistent downward trend.


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