Weekly Analysis

Soybean report – 21/11/2022

Relief for global grain supply as the Black Sea Grain Initiative is extended!

Indices

Futures

Forex

– Argentinian soy plantings have been slow this year due to the soil condition being so dry from recent drought conditions. As you can see from the chart below, Argentinian planting is usually pretty consistent with last years pace sticking in line with the 5 year average. At the start of the month you can see the pace began to slip for this season and is now a fair way off the minimum level over the last 5 years for this time of year.
– Forecasts show some light rains over the next 10 days which is promising, although it is going to be less than needed, we could see planting pace pick up. Reports suggest that soil moisture is very low and the farmers face a big risk if they do plant as they will require consistent rain over the next two weeks. They are past the optimal planting window but can still plant up until December, with increasing risk of a poor crop quality as time goes on.
– The Black Sea Grain Initiative was due to expire on Saturday but was extended for an extra 120 days on Thursday which will see the continuation of grain exports through a safe corridor. We expect to see pressure on grain prices as a result of this boost to global supply. This is likely to be the situation for the foreseeable future with little change in the Ukrainian war and no signs of things coming to an end any time soon.

– Chinese covid cases look to be on the rise with the country reporting its first covid related death in 6 months which is adding to concerns that the end of their zero covid policy could be further away than previously thought which is concerning for investors across the board, but especially for commodities. As the largest consumer of soybeans, further lockdowns are only adding further strain to the demand side of the market.

– The CFTC commitment of traders report from 15.11.22 showed Managed Money to be net sellers as the reduced their long position by 6,232 and added to their short position by 4,711. This leaves them with a net long position of 92,965.
– OR reduced their long and short positions this week leaving them net short 11,404 contracts. NR added to both their long and short positions leaving them net short 28,966.

– The January contract traded in a range of 58 and closed the week down 21.6 cents. As expected the market encountered overhead resistance from that downward trend line and broke through the 200 day MA and 50% retrace level. It continued to the downside on Thursday before bouncing off the 38.2% retrace. Going forward we see see the formation of the contracting triangle leading to a decisive move in the next week or so and we expect it to be to the downside with support seen at the 23.6% retrace level seen on the chart above.
– Elliot Wave see near term strength with prices going above 1475 basis the March contract, by the mid December. However, they are expecting it to be short-lived and still see prices going t0 the 1250 level early next year.

Conclusion

This bounce is likely to encounter overhead resistance fairly soon which we expect to be followed by a downward move. With Chinese lockdowns not showing any signs of slowing down as rumours suggested, despite some slight easing of rules and Brazil still looking set for a record crop we are bearish this market.

Written by:

Ben Williams

Ben Williams

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