- Ben Williams
- December 17, 2022
- 11:05 am
- 10 min read
Strong week for US export sales!
Indices
Futures
Forex
– This week we saw the March contract take over as the effective front month on account of it having the highest open interest. It closed the week 83,980 contracts higher than the January contract.
– There are growing fears that wee are going to see serious over supply late into 2023 with a record Brazilian crop and a poor demand outlook. Many commodity consultancies and government owned institutions suggesting we will see a 150 million tonne crop for the 2022/23 marketing year and acreage at 107 million acres (4.2% increase YoY). This, along with an estimated 118.3 million tonnes from the US crop, will account for around 70% of the worlds production.
– Brazil domestically consume around 45/50 million tonnes so this will leave 100 million tonnes of soybeans for export which the world doesn’t need. The common destination would be China who are the worlds biggest soybean consumer and are forecast to import 98 million tonnes this year. However, unless their zero covid policy has come to and end during the first half of next year their consumption is going to be down from normal figures. And even if things do open up, it will take time for consumption to get back to where it was.
– It is looking unlikely that Argentina’s ‘soy dollar’ will have the same success that it did the first time round. The scheme was reintroduced in late November to boost exports and foreign currency reserves but only 2.98 million tonnes have been traded as part of the scheme since November 28th. This is nearly three times less than the same period in September which was 8.48 million tonnes.
– This is largely down to the fact that Argentinian farmers have been holding onto soybeans stocks as a hedge against the rapidly falling peso. They also sold such large volumes the first time round that inventories are low meaning they are more hesitant to sell.
– Another factor is the fact that China have opted for other origins and this could be seen in this weeks US sales report. The fact that Argentinian beans have a lower protein content makes them less appealing to crushers who have to blend them with other beans too get the desired protein levels from their crush. US export sales were the second highest so for for 22/23 at nearly 3 million tonnes, of which 1.27 million tonnes were Chinese sales.
– The CFTC commitment of traders report from 13.12.22 showed that Managed Money added to their long positions by 13,966 and reduced their short positions by 6,160. They are now net long 119,580.
– OR reduced both their long and short positions and are net short 2,421. NR added to their long and short positions, they are net short 33,310 contracts
– The January contract traded fairly sideways this week in a 29.6 cent range and only closed the week down 4.4 cents. It looked to have found support from the 61.8% retrace level on Monday/Tuesday and there looks to be some overhead resistance between the 1492-1498 levels which we have seen this market fail at multiple times over the last 6 months.
– Elliot Wave still see near term strength with prices going as high as 1530 basis the March contract, in Q1 of 2023. However, they are expecting it to be short-lived and still see prices going to the 1170 level in mid 2023.
Conclusion
The market may continue to trend in this upward trend channel but we expect it to encounter overhead resistance fairly soon which we think will be followed by a downward move. With Brazil still looking set for a record crop we are bearish this market.
Written by:
Ben Williams
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