Regarding yesterday’s Soybean price action following the news that the U.S. / China trade sanctions are still going to be enacted unless their are some kind of last minute Hail-Mary heroics out of the White House today. To wit, China’s leading trade minister, Mr. Zhong Shan, who is here in the States to facilitate those talks.
The rumor is that the U.S. trade advisor Peter Navarro has been excluded from the “talks” taking place today because of his long standing hostile view toward China.
Yesterday bean meal continued to lead bean oil and has over the past three months. Meal has approximately gained 2% while oil has lagged 1.8% lower. Important to note that bean meal leading bean oil is a classic hallmark of a soybean bull market. Today, however, this relationship is not holding water as it has in the past. Furthermore, the backwardation in bean meal has narrowed, while bean oil’s normal contago term structure has widened. “The game is afoot, indeed”.
Term Structure /ZM
July ’18 $375.8 -0.8
Aug ’18 $3.75.0 -1.0
Sep ’18 $372.7 -0.7
Oct ’18 $370.3 -0.7
Dec ’18 $369.0 -0.6
Term Structure /ZL
July ’18 $30.93 +0.34
Aug ’18 $31.06 +0.35
Sep ’18 $31.21 +0.34
Oct ’18 $31.39 +0.37
Dec ’18 $31.75 +0.36
Moreover, the weaker trend in the Brazilian currency is also a bearish force for soybeans as Brazilian producers have been active sellers recently, and the market remains concerned that Argentine farmers will turn to active sellers as well.
With the recent weakness in the Brazilian currency, their soybean export offers have fallen and have moved under U.S. Gulf prices for Chinese landed soybeans. The last six weeks have seen Brazil’s soybean offers go from $30/tonne above the U.S. to $20/tonne cheaper. Brazilian offers extend out to the late summer months with China only having 1.0 million tonnes of U.S. new crop soybean on the books thus far.
The Dalian soybean meal futures continue to slide, trading at a three month low yesterday with ample supplies from large soybean arrivals that have boosted Chinese soy inventories to 7.46 million tonnes, up 780,000 tonnes since last week according to CNGOIC .
Some crushing plants have suspended operations as soybean meal stocks are flush and hog margins are negative for the first time in several years (TMH-“Too Many Hogs”).
The Argentine soybean union has planned a strike at ports and crushing plants along the Parana River in San Lorenzo in protest against the dismissal of employees by Cargill Inc. The start time and duration have not been announced if your interested in attending, I’ll keep you posted.
For the weekly export sales report, traders are looking for soybean export sales to come in near 350,000 to 650,000 tonnes with soybean meal at 150,000 to 350,00 tonnes and soybean oil at 10,000 to 30,000 tonnes.
Today’s Market Ideas
Trade developments with China and movement in the other grains seem to be key short-term forces to move the market. July soybeans held on this break just above the April 4th lows which was the low from the original U.S. / China tariff announcement, but the market settled at 1026 1/2 on that day.
A close below 994 1/2 should open the floodgates with more liquidation type selling. Both soybeans and soybean meal remain oversold and will be sensitive to headlines if positive developments emerge from the trade talks. Close-in support for July soybean is at 1001, with 1024 1/2 resistance. July bean meal is 377.00 with resistance at 387.70.
- Long July/December (+1 /ZMN8) (-1 /ZMZ8) spread from +10.60, looking for +$22.60. Risking a close under +$6.40.
- Long July ’18 / Short March ’19 (+1 /ZMN8) (-1 /ZMH9) at +$22.40 premium. Looking for +$50.00. Risking a close under +$20.05.