Prices are sharply higher on the Chicago Board of Trade this Tuesday morning, Jan. 17. Credit the long weekend caused by the Martin Luther King holiday. Also credit continued follow-through from the USDA Supply and Demand Report Jan. 12. The combination seems to be getting a reaction that is more positive than expected.
Soybeans are leading the markets this morning. The lead-month March futures are up 16 1/2 cents, at 10.62 3/4. This gets us to the highest price since early December. On Dec. 7, we had a high of 10.63. The day before, we were 10.71 1/4 briefly. The real high was Nov. 28 at 10.74.
So, we are right at the contract high on this bounce, wondering if it is possible to make a new high.
Credit the USDA Supply and Demand Report for sparking this bounce, which started on last Thursday after the report was released.
We traded lower into the report, with a low 9.93 1/2 on the 9th, last Monday. Thursday we gained a net 28 3/4 cents, and Friday we added six more cents, with a high at 10.52 3/4.
Market watchers said Jan. 12 that the bounce was more than the report justified. The follow-through on Friday and Tuesday, as this is written, is a result of traders getting spooked by the bounce Thursday, in my opinion.
The news in the report was positive, just not very big. USDA said the final bean acres were slightly less than predicted. The trade looked for 83.013 million acres, but USDA said we had 82.7. They downgraded the final yield, from the December report’s 52.5 bushels/acre to 52.1. The trade was looking for 52.8. Those adjustments dropped the final crop production to 4.307 billion bushels, down from the December number of 4.361, and lower than the expected 4.374.
So, the trade was expecting higher yield and higher crop size, but got a little lower. The result dropped the expected carryout to 420 million bushels, 60 million less than in the December report and 48 million less than trade expectations.
While we are adjusting our numbers a little, the South American crop is struggling a little. Now rain is seen as negative to the crop, when it was a positive just last week! Two to three inches fell over most of the Argentine crop. Now analysts say as much as 10 percent of the Argentine crop may be affected by excess rain. The rain is also delaying the end of the corn planting season, which is now 91 percent finished. One estimate for the Argentine bean crop is off 4 MMT.
Again, the numbers seemed like small adjustments, but they all were in the direction of a smaller crop at the same time that the South American crop that is growing now is seen to be having some problems.
The result was a fairly large price adjustment so far.
Corn not following pattern
Significantly, the corn prices, which have been trading somewhat independently of the beans, have not seen the gains of the soybeans. The March corn futures recent high was actually 3.62 3/4 back on the 5th. On Thursday, Jan. 12, we gained a cent and made a 3.60 recent high. On Friday we only got another quarter of a cent, to a high of 3.59 1/2.
Here, the long weekend may have limited the gains. This Tuesday morning, the March corn futures are up three and three quarters of a cent, and we are trading at 3.62 1/4, just below the recent high. The argument can be made that we have rallied to just below the high in both corn and beans.
It just seems like the beans are accomplishing more because they had dropped so far from the high, down to 9.92 3/4 on the fourth. With a 10.70 high sometime overnight, we have actually seen a 77-cent bounce.
Here comes the hard part. What do we see that can make us break into new territory? If this is mostly an over-reaction to the USDA report, that reaction is usually limited to a day or two. This is the second day, and I see nothing that would shake the chart.
By the time you read this, more will be known, but I am not bullish now that the bounce is in.