Soybean market may have removed too much war premium; demand strong

The soybean market closed sharply lower on Tuesday but up 21¢ from the lows of the day. The early selling drove the market down to its lowest level since February 28.

A collapse in energy markets, a sharp drop in most agricultural markets, and a jump in the stock market seem to have traders convinced that a cease-fire is close at hand, and the war premium is coming out of the market very quickly. The market is now trying to price in a back-to-normal scenario. News that China plans to release 500,000 tonnes of soybeans from state reserves this week was seen as a bearish factor for meal.

Soybean planting is difficult to predict this year, and several factors are in play. The soybean/corn ratio is currently favoring corn plantings, but it’s hard to keep up with the inputs as fertilizer prices surge to all-time highs.

For the USDA Prospective Plantings and Grain Stocks reports on Thursday, the average trade expectation for U.S. soybean planted area is 88.9 million acres, with guesses ranging from 86 to 92.9 million. This would be up from 87.2 million last year and above the USDA’s Outlook Forum estimate of 88 million. March 1 soybean stocks are expected to come in around 1.888 billion bushels (1.532 billion to 1.965 billion range), up from 1.562 billion bushels last year. Expectations cover a very wide range of 433 million bushels. 

Argentine gas stations are selling a maximum of 15 liters of diesel per customer. This rationing could limit harvest activity. A fertilizer shortage could reduce usage and lower production for key producers. Russia is Brazil’s main supplier of fertilizers, and the war in Ukraine is leading to concerns that shipments will be disrupted.

Much of the U.S. Midwest has seen above-average precipitation over the past week. There are reports of fieldwork being slowed by the rains in the Delta and the eastern Corn Belt. One notable exception is the Dakotas, which have seen below-average precipitation the past week and in the last 30 days.

Crushing margins remain very high, and capacity is on the rise. Renewable fuel and elevator capacity are also on the rise, which is a positive demand force. 

Market Ideas

If the market extracts the war premium, the focus will return to normal fundamentals. Gulf basis was strong. Key support for July soybeans is at $15.39½ with close-in support at $15.97¾. It will take a move back over $16.72 to turn the charts bullish again. November soybean key support is at $14.16½ with resistance at $14.79 and $14.96¾. Our short-term bias remains in the bull camp.

For a free trial of The Hightower Report's Daily Comments and Weekly Market Letter, visit hightowerreport.com, call 800-662-9346, or drop us an email at hightower@hightowerreport.com. 

About the Author: Terry Roggensack, a founding principal of The Hightower Report, analyzes the livestock, grain and soft markets. Roggensack has over 30 years experience in the commodity and financial futures industry. In the late 1980s, he briefly lived in London as acting director of a new London clearing firm. Prior to that, Roggensack was director of research at Stotler & Company.

Editor’s Note: This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.